IMF forecasts Peru’s economy to slow down and grow by only 3% in 2022

RIO DE JANEIRO, BRAZIL – The International Monetary Fund (IMF) estimates that Peru’s Gross Domestic Product (GDP) will grow by 3% in 2022, after rebounding by 13.3% in 2021 following a historic slump of 11% in 2020.

In its Article IV conclusion on the Andean country, the agency has warned that while Peru’s economic recovery has been solid, the outlook faces downside domestic and external risks.

Concerning 2023, 2024, and 2025, the Fund forecasts Peruvian GDP to grow by 3% in each of the years.

The multilateral institution has explained that the slowdown in 2022 will occur due to tightening external conditions and the withdrawal of stimulus policies.

The pandemic, a sharp tightening of global financial conditions, prolonged global supply chain disruptions, geopolitical tensions, and an abrupt slowdown in growth in China, Peru’s leading trading partner, are the main risks facing the Peruvian economy.

Added to all this is the country’s political uncertainty, which could adversely affect private investment and trigger greater volatility in financial markets.

“Although a strong recovery was noted in 2021, the Andean country’s real GDP remains below its pre-pandemic trend, and the labor market has not yet fully recovered,” the agency has indicated.

Regarding other indicators, the fiscal deficit fell to 2.6% of GDP in 2021 thanks to higher metal prices and higher collection via tax revenues, the collection of back taxes, and the elimination of the 2020 fiscal stimulus measures. Meanwhile, international reserves increased to US$78.5 billion, 35% of GDP in 2021.

Peru has access to an US$11 billion Flexible Credit Line agreement with the IMF, which is granted to countries with a track record of prudent policies and can be used as additional protection.