Peru - Economic Briefing October 2004

Fishing Overtakes Mining as Main Driver

Spurred by strong mining in the first half of the year and resilient fishing in the second half, the primary sectors are buttressing the economy.  In addition, mining is likely to recover strongly towards the end of the year, as the giant Camisea gas project ramps up operations.  As a result, the economy is set for yet another year of robust growth and - barring negative surprises on the political front - should remain on track for strong growth next year.

Economic growth accelerates in July – trend remains unchanged
In July, the economy expanded by 3.8% compared to the same month in 2003.  The reading constituted an acceleration compared to the 3.0% growth observed in the previous month, which had represented the weakest showing since December last year.  Monthly data corroborate the acceleration registered by the year-on-year comparison.  According to seasonally adjusted data the economy expanded by 0.36% over the previous month.  The July reading consolidates the growth trend at the lower end of the 3.4% to 3.8% growth rate range, which prevailed in the first seven months of the year.

Mining continues to propel growth amid higher copper and gold output
The economic developments in July were dominated by two factors, which have characterised the past three months: a slump in mining and a surge in fishing.  In July, mining and fuels contracted by 1.9% over the same month last year, the third consecutive month of declining activity.  Over the past three years, mining had constituted the cornerstone of economic growth and in the first four months of this year, the sector had expanded by 12.0% over the same period last year.  The slump observed in July was mainly due to a decline in gold, zinc and iron output.  Production levels in zinc and gold declined amid lower concentration of the metal in the extracted ore.  Iron output, which is less important than gold and zinc, was virtually halved compared to last year’s level, as activity from the only iron producer, Shougang Hierro Perú, ground to a halt.  Copper, in contrast, expanded 31.5% over July 2003.  The copper sector has benefited from massive growth at Antamina, the country’s second largest copper mine, and the ramp up of mining operations at the BHP Billiton Tintaya mine.  After activity resumed in October 2003, the mine is now the third largest copper mine after Southern Perú Cooper Corporation and Antamina, which have a market share of 46.5% and 39.0% respectively. 

Buoyant fishing leads primary manufacturing to strong growth
In contrast to the dismal developments of mining, fishing thrived.  In July, the fishing sector expanded by 58.8%, following on 28.5% growth registered in June.  The July reading was the strongest growth registered since November 2002 and represented the seventh consecutive month of strong activity, the last five in the double-digit range.  Typically, the erratic shifts in activity of the fishing sector, following on sudden climatic changes and government-induced fishing bans, account for the lion share of the volatile developments in the economy, as a large part of the country’s manufacturing activity depends on fishing as a input.  This year’s seven month patch of positive growth rates in fishing comes on the back of many government-imposed bans on the catch of anchovies during the same period last year.  This year, the government has imposed less bans owing to more favourable climatic conditions.  In July, climatic conditions enabled a tripling over last year’s catch of anchovies, which account for almost half of total fishing output.  The favourable developments in the first seven months of the year are likely to help lift fishing activity overall this year.  The National Fishing Association estimates that Peru will produce about 6.8 million tons of fish products this year compared with 5.9 million tons in 2003.  Furthermore, the Central Bank estimates that annual fish product exports will exceed US$ 1 billion this year.

Manufacturing accelerates strongly amid strong input from fishing sector
Primary manufacturing, which depends to a large extent on fishing as a key input, also profited from the sustained recovery in the fishing industry.  In July, manufacturing based on raw materials rose 17.8% over July 2003, following on 16.2% growth in June.  The July reading represented the fastest growth pace in primary manufacturing observed in almost two years.  The strong recovery came in spite of a 2.3% contraction in agriculture and livestock (June: -6.9% year-on-year), which, next to mining, constituted the only sector in negative territory in July.  Agriculture contracted as a consequence of lack of rain in the mountain zones and unusually cold weather in the south.  Growth of non-primary manufacturing also accelerated, from 5.0% in June to 6.6% in July.  The resilience observed in the manufacturing sector was particularly pronounced in capital goods, which expanded by 72.4% annually in July but account only for a small part of total industrial manufacturing.  While consumer goods expanded a strong 7.5%, intermediate goods output registered the slowest growth rate with a 3.6% expansion over July 2003.