Julio Velarde, the head of Peru’s Central Bank, lowered the country’s 2023 growth forecast from 2.2% to 0.9%.
He spoke during the “September 2023 Inflation Report” presentation. Velarde blames the cut mainly on the El Niño weather event and low public trust.
The agriculture sector shrank by 2%. Fishing is expected to drop by 27%. Velarde says droughts and El Niño are the main causes.
Early-year social protests also hurt the economy, he added. These protests disrupted sales and production like COVID-19 lockdowns did.
Domestic demand is down. Manufacturing is likely to fall by 3.5%. However, inflation has eased to 5.58% in August, from 8.81% in June.
Velarde expects it to keep dropping. The year-end target is between 1% and 3%.
Peru has one of the lowest inflation rates in Latin America. It sits at 3.8%. For comparison, Chile is at 5.2% and Brazil at 6.3%.
Velarde warns food prices could rise in 2024 due to social conflicts and natural events.
The Central Bank also cut its key interest rate. It’s now 7.5%, down 25 basis points from 7.75%. The rate had been stable for seven months.
Peru Background
Peru has faced economic challenges for years. In the past, growth was fueled by mining. But reliance on minerals made the economy vulnerable.
Economic diversification has been slow. Agriculture and fishing are key sectors but face issues. Weather events like El Niño impact them severely.
Corruption is another problem affecting growth. Several ex-presidents have faced legal issues. Public trust in institutions remains low.
Protests and political instability are common. These factors add to economic uncertainty. Yet, natural resources and tourism offer future growth potential.