Peru - Economic Briefing July 2004

Strong Mining Sector Buttresses Economic Growth

Strong mining and favourable commodity prices continue to propel the economy, which is set for yet another year of robust growth.  In addition, the mining sector is boosting economic activity notably and 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 negative surprises on the political front, the economy should remain on track for strong growth in the next two years.

Economic growth slows in April as expected
In April, the economy expanded by 3.3% compared to the same month in 2003.  The reading was in line with market expectations, which had anticipated a slowdown from the 5.5% annual growth recorded in March.  In fact, the April reading constituted the slowest pace observed so far this year.  The weaker growth pattern observed in the year-on-year comparison is also reflected in data adjusted for seasonal factors, which show that the economy contracted 0.89% over the previous month, the first contraction since November 2003.

Mining continues to propel growth amid higher copper and gold output
In April, mining continued to be the backbone of economic growth.  The mining sector grew 11.0% over April 2003 and thus constituted the fastest growing sector in the economy.  The sector returned to a double-digit growth pace observed throughout this year that was only interrupted by a bout of “weakness” in March, when mining expanded by “only” 8.6% over the same month last year.  The sector has shown resilient growth despite a 4.1% annual slump in output of zinc, which is Peru’s most important mining commodity.  The weak zinc production was compensated for by a strong increase in copper output.  Copper added 33.1% over April 2003, the third consecutive monthly expansion above 30%, mainly due to a recovery of full capacity at the Antamina mine, following on a period of declining output.  Robust growth of gold (+11.3% year-on-year) and silver (+14.3% yoy) also contributed to the strong performance of the entire sector. 

Deterioration in fishing sends primary manufacturing nose-diving
Fishing was the second-fastest growing sector.  However, the 8.7% expansion over April 2003 represented a notable slowdown when compared to the very robust 14.0% year-on-year expansion observed in March.  As a result of the slowdown, primary manufacturing, which depends on fish as an important input, deteriorated 2.6 percentage points reverting the 0.1% March expansion to a 2.5% contraction in April.  In addition to fishing, lower activity in agriculture and livestock (April: -5.3%; March: -0.1%) accounted for the slump in primary manufacturing.  Agricultural production dropped, particularly potato, corn and sugarcane output, due to a combination of adverse climatic conditions, plagues and lower seeding. Healthy growth in coffee, cotton, asparagus and poultry, however, helped avert a more pronounced decline in agricultural output.

Non-primary manufacturing remains robust amid strong consumer goods output
Non-primary manufacturing, on the other hand, continued to expand at a robust pace even if at a slightly lower level than in March.  In April, non-primary industries added 8.0% over the same month last year, slightly down from the resilient 9.6% expansion observed in March.  The strength of non-primary manufacturing was mainly due to higher consumer goods output, whereas intermediate goods developed broadly along the same lines recorded in March.  Capital goods output, in contrast, dropped 8.3%, following on almost 100% growth in March.  The robustness in non-primary manufacturing output mitigated the detrimental impact from industries based on raw materials.  As a result, total manufacturing output increased 5.6% following on 7.8% growth in March.