Peru - Economic Briefing June 2004

Mining Propels Economy (continued)

Outlook remains robust
Consensus Forecast panellists remain upbeat that Peru will experience yet another year of robust growth.  In the second quarter, economic growth is seen to slow to 3.4%.  However, in the second half of the year growth should resume to a 4.3% pace, as the impact of the Camisea project will provide extra fuel to the Peruvian growth engine, resulting in full-year growth of 3.9%.  The year-end boost should also provide a solid backdrop for robust growth next year, which is seen at 3.8% - a notch above last month’s forecast.

Current account deficit shrivels as trade surplus grows amid higher exports
In the first quarter, the current account balance incurred a deficit of US$ 68 million.  The figure was well below the US$ 128 million observed in the final quarter and only a fraction of the US$ 514 million in the first quarter last year.  The improvement over the same period last year was mainly due to an improvement in the trade balance, which reversed a small deficit of US$ 18 million in the first quarter 2003 to a sizeable US$ 559 million surplus.  The high surplus reflected a change in the terms of trade, which improved by 14.7% in annual terms.  In contrast, the income and service balances deteriorated over the same period last year by US$ 180 million and US$ 12 million, respectively. However, current transfers increased by US$ 60 million, mitigating the impact and thus allowing for the higher current account surplus.  The financial account balance registered a surplus of US$ 271 million in the first quarter, which was well below the US$ 1.0 billion surplus observed in the same period last year.  The deterioration was concentrated in the public sector, which recorded net outflows of US$ 34 million compared to US$ 597 million inflows in the first quarter 2003.  

Consumer prices increase in May
In May, consumer prices increased 0.35%.  The reading was well above last month’s Consensus, which had prices growing by 0.22% and also exceeded the virtual price stability observed in April.  Higher prices for food and beverages accounted for the lion share of the price increase mitigated by lower prices for recreation and culture as well as in the category “other goods and services”.  As a result of the May price spike, annual headline inflation jumped from 2.8% in April to 3.2%.  The Consensus believes that inflation will drop to 2.5% by the end of the year, which is precisely in line with the Central Bank’s 2.5% target.