Peru - Economic Briefing May 2004

Strong Mining Spurs Economic Growth

Driven by strong mining and favourable commodity prices, the Peruvian economy is in for yet another year of robust growth.  In addition, the country will begin to profit from the stimulating effect of the giant Camisea gas project that will bolster economic growth in the second half of this year.  Barring further negative surprises on the political front, the economy should remain on track for strong growth in the next two years.

Economy develops above expectations in February
In February, the economy expanded by 4.1% compared to the same month in 2003.  The reading was well ahead of the 3.0% pace observed in January and also exceeded market expectations, which had anticipated more moderate 2.9% growth in the second month of the year.  Moreover, when taking seasonal factors into account, the economy expanded at an even more robust pace than suggested by the annual figures.  According to seasonally adjusted data, the economy expanded 0.8% over the preceding month, following on a very strong 1.9% monthly growth observed in January, which had constituted the fastest growing month since 2002. 

Buoyant mining sector drives growth
The mining sector propelled economic growth in February.  Following on a very robust 11.4% year-on-year expansion observed in January, the mining sector’s growth accelerated further to 17.4% in February over the same month last year.  The improvement was due to a massive boost in copper and gold output, with gold advancing at the quickest pace registered in two years.  Copper, which is Peru’s most important mining commodity, added 36.4% over the same month last year.  According to the National Statistical Institute (INEI), the increase was mainly due to a recovery of full capacity output at the Antamina mine, following on two months where the country’s largest copper mine registered a decline in output.  Gold is only slightly less important than copper in terms of its relative weight within the mining sector and thus constitutes one of the most important commodities for Peru. Gold output rose 30.8% over February 2003, even faster than the 25.2% growth registered in January.  The massive boost to gold production was attributable to a stepping up of production at the country’s largest gold mine Minera Yanacocha. Yanacocha accounts for more than half of total gold output and extracted 34.5% more than in the same month last year. 

Camisea gas project will boost mining and overall economic performance this year
Mining should continue to constitute a major driver of the Peruvian economy.  While commodity prices dropped somewhat in April, they remain well above last year’s levels.  By the end of April, the price for copper was 71.6% above the price for the same month last year; zinc 34.7%, gold 16.0% and silver 22.0%.  These four metals account for 85.4% of total metal mining output.  Next to the direct impact resulting from the higher proceeds and tax takes, Peru should also benefit from new investment projects.  The largest boost to mining investment in 2004, however, should stem from the Camisea project, which includes exploitation of the Camisea gas fields in the Ucayali Basin; the transportation of natural gas and natural gas liquids in two pipelines across the Andes to the Pisco area on the Peruvian Coast; processing and export of natural gas liquids; and the transportation and distribution of natural gas to Lima.  The entire project will cost about US$ 1.6 billion and will enable Peru not only to become self-sufficient in energy but also a net exporter.  The investment is expected to add 0.8% to Peru’s gross domestic product (GDP) for each year of the project life and should also improve not only the country’s trade but also public sector balance via increased tax collection and royalties.