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Economic growth is spreading to the domestic
side of the economy, as the rebound driven by the external sector and by
government spending is seizing the rest of the economy. Simultaneously, the
deflationary period is drawing to an end, as businesses use the recovery of
consumption to raise prices. |
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Economic growth spreads to
domestic side in the first quarter
In the first quarter, gross domestic product (GDP) expanded by 3.0%
compared to the same period last year. The reading was a notch above last
month’s forecast and was unchanged over the annual growth rate reached in
the previous quarter. Even though there was no change in the general GDP
growth rate from the fourth quarter last year, data for supply and demand
reveal that some important shifts have taken place in the Peruvian economy
over the past months. In the fourth quarter, the recovery from the year-long
recession, which had begun in the third quarter last year, was mainly
bolstered by the external sector and government spending. Now, in the
first quarter, the upswing has seized a firm grip over the domestic side
of the economy. Growth of domestic demand has quickened from 0.6% in Q4 to
1.0% in the first quarter and private consumption has increased to 2.0%
compared to 1.4% in the final quarter last year. Government consumption,
on the other hand, has receded from a 7.1% expansion to just 3.7% growth
in the first quarter. In total, consumption added 2.2% over the same
period last year and was thus a notch above the 2.1% recorded in the
fourth quarter. Consensus Forecast panellists believe that growth in
consumption will pick up mildly over the course of the year, with full-year
consumption growth anticipated to reach 2.6%.
Investment slumps despite government promises to revive business spending
Gross fixed investment remained in negative territory, dropping 5.6% on an
annual basis. This represents a small improvement when compared to the
6.3% decline reported in the fourth quarter but is particularly
disappointing given the low comparison basis in the same period last year.
Investment is now in recession for the seventh consecutive quarter and in
absolute terms even below 1995 levels. The Toledo administration has
repeatedly emphasized its desire to attract new investments but has yet to
live up these promises. Consensus Forecast panellists are loosing faith in
the government’s ability to revive investment in the short term and have
lowered their forecasts continuously from 3.4% investment growth in 2002
expected three months ago to the current 2.2%. For the coming year,
panellists are much more optimistic, expecting a strong 6.1% rebound in
investment.
Exports
grow at slower pace as fishing plummets
The contribution from the external sector has weakened compared to the
previous quarter. According to GDP data, growth of exports slowed from
8.7% in Q4 2001 to 5.4% in Q1. The lower growth rate is mainly due to
plummeting exports of fishing products, which declined almost by half and
thus offset the strong growth of mining exports. Imports, on the other
hand, dropped at a quicker 5.9% rate in the first quarter compared to an
annual decline of 4.7% in final quarter of last year. The declines were
concentrated in raw materials and intermediate goods as well as capital
goods destined to the domestic industry. In addition, declining oil prices
lowered the import bill.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Peru. For more details please click here.
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