Peru - Economic Briefing December 2003

Robust Growth to Continue Next Year (continued)

Outlook remains unchanged
The third quarter economic growth figure confirms the consolidation of a new economic expansion trend significantly below the 5.0% threshold, which had characterised the economy for one year up to the end of the first quarter 2003. Given the absence of any significant surprises to the upside or downside, Consensus Forecast panellists lifted their forecast for full year growth just a notch from 3.9% expected last month to 4.0%. This is almost a full percentage point below last year’s growth rate. In November, the National Statistics Institute (INE) had revised its previous 5.3% growth figure for 2002 downward to 4.9%. The new growth trend is also seen to carry over into 2004, when the economy is expected to expand by 3.9%. While past drivers such as new mining operations and favourable climatic conditions are unlikely to be repeated, further advancement on the Camisea project should drive investment and the more favourable development of the global economy should provide upside potential for the country’s external sector and commodity prices.

Current account deficit drops amid healthy export growth
In the third quarter, the current account balance incurred a deficit of US$ 184 million (1.2% of GDP). This was slightly more than the US$ 207 million registered in the second quarter but well below the US$ 253 million observed in the same quarter last year. The improvement over last year was due to a higher surplus in the trade balance, which rose from US$ 157 million in the third quarter of 2002 to US$ 232 million this year. Exports increased 9.0% from a year ago, mostly driven by buoyant non-traditional and also, but to a lesser extent, robust traditional export sales. Imports increased 5.9% over the same period last year, due to higher acquisitions of capital-, intermediate- and consumption-goods. The lower deficit in the services and income balance also supported the improvement of the current account. The financial account balance incurred a deficit of US$ 231 million compared to a US$ 979 million surplus in the third quarter 2002, when the capital account was bolstered by a recorded US$ 657 million in revenue attributed to the sale of the Backus conglomerate. The deterioration in the capital account was due to private and public sector financial accounts, which both reverted from a surplus in 2002 to a sizable deficit in the current year (US$ 281 and US$ 151 million, respectively). Short-term capital flows, on the other hand, were positive at US$ 200 million, following on a US$ 220 million deficit in the third quarter 2002. The joint deficits of the current and financial accounts explain the outflow (US$ 242 million) in international reserves. At the end of the third quarter, the Central Bank reported international reserves of US$ 9.8 billion, which will rise to US$ 10.0 billion by the end of the year, according to the Consensus. The annual current account deficit reached US$ 1.2 billion in the third quarter but Consensus Forecast panellists see the deficit shrinking to US$ 1.1 billion by the end of the year.