Economy: Latinfocus lowers growth forecast for Peru again this year

Analysts consulted by FocusEconomics now estimate that the Peruvian economy will contract 12.3% in 2020, a drop of 0.6 percentage points from last month’s forecast, revealed the LatinFocus Consensus Forecast report from September.

Out of a total of 27 economic analyzes, 23 panelists project that the fall of the Peruvian economy will be double digits this year, as a consequence of the impact of COVID-19 in the country. Among the harshest estimates are those of Thorne & Associates (-17%), Rimac Insurance (-15.8%) and BBVA Banco Continental (-15%).

Looking at 2021, analysts are optimistic about a “strong recovery”Of the Peruvian GDP and foresee a 9% growth, which is 0.3 percentage points more than the .

The economy slumped in the second quarter, contracting by almost a third as one of the tightest lockdowns in the region brought activity to a virtual standstill in April.They said in the report.

Household consumption fell by more than a fifth as social isolation measures and a strong rise in the unemployment rate curbed spending. Meanwhile, exports collapsed by almost half due to border closures and declining external demand.

However, some rays of light emerged amid the gloom at the end of the quarter, as easing of restrictions led to a markedly softer drop in economic activity in June, tentatively suggesting that the worst of the crisis has passed”, They noted.

Moving into the third quarter, sustained public spending, which totals around 13% of GDP, should support an improvement in activity going forward.

The economy is expected to contract drastically this year, as the impact of a high contagion rate hampers activity: falling household consumption and lower fixed investment will affect the national economy, while weak demand for key exports will affect the external sector ”, they said.

However, continued public spending should ease the recession somewhat. GDP is forecast to contract 12.3% in 2020, 0.6 percentage points lower than last month’s forecast, before recovering strongly and growing 9% in 2021.

Inflation

Inflation fell to 1.7% in August from 1.9% in July, further away from the midpoint of the Central Reserve Bank’s (BCR) target range of 1-4%. This year, inflation is expected to decline compared to 2019, as contraction in consumer spending, a higher unemployment rate and low energy prices suppress upward price pressures.

FocusEconomics panelists forecast inflation to end 2020 at 1.1%, which is 0.1 percentage points higher than last month’s forecast, and 2021 at 1.6%.

Interest rate

At its most recent meeting, on September 10, the BCR kept the monetary policy rate unchanged at 0.25%. The decision came amid subdued inflation and underscored the bank’s desire to continue to monitor the full impact of April’s 100 basis point cut.

However, the BCR maintained its expansive tone. The FocusEconomics panel predicts that the monetary policy rate will end 2020 at 0.24% and 2021 at 0.41%.

Exchange rate

The sol was virtually flat in recent weeks, as poor second-quarter results offset the recovery in interest in emerging market currencies.

On September 11, the sun closed the day at 3.58 per US dollar, depreciating 0.4% compared to the same day in August. The Peruvian currency is expected to strengthen slightly through the end of the year, as the country’s strong fundamentals see renewed interest in the sol.

Analysts at FocusEconomics estimate that the sun will end 2020 at 3.46 per USD and 2021 at 3.42 per USD.

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