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September blasts expectations
amid buoyant fishing and construction
As we had reported last month, the National Statistical Institute (INEI)
has discontinued the publication of monthly gross domestic product (GDP)
data with its August report. However, INEI continues to publish sectoral
developments, which permit a good estimate of the trajectory of overall
economic activity. According to Central Bank numbers, which are based on
INEI data from, the economy expanded by 7.3% compared to the same month
last year. The September reading easily topped market expectations and was
almost twice the growth registered in August. In fact, the September
output rate represented the strongest growth pace registered since March
2000. The record growth is mainly due to a strong pickup in construction
and manufacturing activity.
Investment recovers in third quarter after a two year slump
The strong economic activity registered in September also provided an
unexpected boost to third quarter GDP. According to Central Bank data, GDP
expanded by 5.2% in the third quarter compared to the same period last
year, well ahead of the 4.1% expected by the Consensus. Data for first and
second quarter GDP were also revised on the occasion from 5.3% growth in
Q2 reported earlier to 6.1% growth and from 3.0% in the first quarter to
2.8%. The healthy third quarter reading was mostly driven by strong
domestic demand, which expanded by 5.3% over the same period last year
(Q2: +4.8% yoy). Consumption grew at a robust 4.3% pace, however the rate
represented a slight slowdown from the 4.5% expansion registered in the
previous quarter. Investment, on the other hand, improved notably in the
third quarter. Even though gross fixed investment added only 3.0%, the
third quarter reading represents the first positive performance after
eight consecutive quarters of contractions. Healthy private sector
investment activity was the key behind the strong growth in the third
quarter (+4.5%), since the public sector remained mired in negative
territory (-4.3% yoy). Exports added 3.9% (11.9%) over the same period
last year and imports increased by 4.4% (Q2: 3.7%).
Beneficial impact of mining drawing to an end
The third quarter growth is remarkable, especially taking into
consideration that the beneficial effect from the mining sector is finally
drawing to an end, as reported in publications earlier this year. The
sector increased by just 3.6%, thus ending a string of four consecutive
quarters of double-digit growth. In past quarters, mining sector growth
had been boosted by the Antamina copper-zinc mining project, which picked
up production over the course of last year and ramped up to commercial
output levels towards the end of 2001. As a result, the favourable
base-year effect is now gone and mining should develop along more moderate
lines.
Construction leads growth, followed by fishing but El Niño threatens on
the horizon
On a sectoral basis, construction led third quarter growth, expanding a
healthy 11.4%, following on an already healthy 7.9% expansion in the
second quarter. The sector continues to recover from an almost three year
recessionary stretch, which ended last year, when government construction
projects, which had been held back amidst the political jitters related to
ex-President Fujimori, were finally set into motion. Construction was
followed by fishing, which grew by 7.8%, amid favourable climatic
conditions. Even though fishing accounts for only half a percentage point
of GDP directly, the industry serves as an important base material for
other components of GDP, such as primary manufacturing. Hence, when
fishing drops off dramatically as a result of government imposed fishing
bans or unfavourable climatic conditions, primary GDP tends to take a
serious nosedive. According to climate research institutions, Peru may
once again suffer the detrimental impacts of the so-called El Niño weather
phenomenon (large scale weakening of the trade winds and warming of the
surface layers in the eastern and central equatorial Pacific Ocean, which
causes large changes in the climate affecting large parts of the Americas,
most notably Peru). The U.S. government Climate Prediction Center, expects
wetter-than-average conditions over coastal sections of northern Peru
during December 2002-April 2003. However, the impact is expected to be
much more moderate than the devastating El Niño of 1998.
Manufacturing boosted by pick-up in consumption
The manufacturing industry increased by an annual 5.6% in the third
quarter and thus improved over the 4.3% registered in the second quarter.
The improvement is due to accelerated growth in primary-based
manufacturing, which was helped by an increase of fishing towards the end
of the quarter. Non-primary manufacturing grew a robust 7.6%, amid strong
intermediate and consumer goods output. Capital goods production, on the
other hand, contracted. Given the favourable development of the economy in
the third quarter, Consensus Forecast panellists have once again hiked
their projection for full year GDP growth by 0.2 percentage points since
last month to the current 3.9%. Only three months ago this year’s growth
was seen at 3.2%. However, despite the rapid adjustments to forecasts,
which now see the Peruvian economy to be the fastest growing in the
region, the actual performance could even top the latest adjustments.
According to estimates of the Finance Ministry, the economy expanded by
5.4% in October and 7.0% in November. The data do not coincide with the
INEI data set – for September the Finance Ministry reports growth of only
4.5% - however, they indicate that the current resilient pace will
continue throughout the remainder of the year. If these preliminary data
are confirmed, GDP growth could exceed 4.5% in 2002. For 2003, the
government seems overly optimistic. According to President Toledo, the
economy could grow by as much as 6% in 2003, which is almost twice the
3.2% expected by the Consensus.
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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