Peru - Economic Briefing June 2002

Economic Growth is Broadening Across the Economy  (continued)

Mining leads growth bolstered by new mine, fishing plummets amid anchovies fishing ban
On a sectoral basis, mining led the pack with a stellar 23.7% year-on-year expansion. As we have reported earlier, the increase is entirely due to the Antamina copper-zinc mine, which picked up production in the third quarter last year. Consequently, the comparison base with 2001 is still very favourable and this effect should continue throughout the current quarter until subsiding in the third and fourth quarter, when the mine ramped up production to full levels the year before.

Construction was the second best performing sector in the first quarter. The construction industry expanded a healthy 10.3% over the first quarter 2001, the second positive quarter after three years in recession. According to the construction industry federation (Acronym?), the sector is in for strong growth this year fostered by the Toledo administration’s desire to create jobs in the labour-intensive industry. Fishing carried the red lantern, plummeting 22.1%. The sector is always haunted by sporadic fishing bans imposed by the government in times of adverse climatic conditions, which prompt bouts of declining activity but usually remain short-lived. The first quarter, however, represents the third consecutive quarter of double-digit drops. As a consequence, the manufacturing industry based on primary materials, which depends in good part on input from the fishing industry, also performed weakly. In fact, in the first quarter, the prime-material based manufacturing sector dropped 3.6% and thus constituted the second worst performing sector.

Economy grows at fastest clip in years
In April, the economy expanded 7.5% compared to the same month last year, according to preliminary data from the National Statistical Institute (INEI). The increase represents the highest growth rate reported in the past four and half years but is inflated by seasonal factors. With Easter falling in March this year instead of in April, the month had two additional working days compared to 2001. Nevertheless, even when accounting for this seasonal effect, the economy still grew 4.1% in April, the fastest rate since August 2000. Fishing remained in negative territory with double-digit declines but constituted the only contracting sector. Mining also continued its positive growth trend observed in the past months and again expanded at double-digit rates in April. Furthermore, the manufacturing sector’s performance came as a positive surprise adding 8.6%, following on much lower growth in previous months. For the full year, Consensus Forecast panellists expect the industrial sector to expand by 2.7%. Thus, the sector will be a key driver of overall GDP growth, which is seen to expand 3.4% this year, unchanged from last month. In 2003, the industrial sector will once again act as an engine behind economic growth with a growth rate of 4.4% compared to 3.9% GDP growth.

Slowly escaping the deflationary valley
The country is very gradually crawling away from deflation. In May, consumer prices increased by 0.14%. Housing, fuels and electricity registered the highest price increases but were compensated for by very mild price hikes in other categories. As a result of the May price rise, annual headline inflation rose from 0.05% in April to 0.17% in May. This constitutes the highest rate since October last year and puts an end to the deflationary period, which lasted for four months.
 

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Peru.  For more details please click here.

For five-year forecasts, please click here.