Peru’s Economy Contracts Unexpectedly in March

Peru’s economy unexpectedly contracted in March, surprising analysts who had forecast moderate growth.

The National Institute of Statistics and Informatics (INEI) reported that the economic activity index, a proxy for GDP, fell by 0.28% compared to the same month last year.

Analysts had predicted a growth of 0.8%, but only one anticipated a contraction. Additionally, production dropped by 0.29% from the previous month.

This annual comparison reflects seasonal fluctuations, notably in the anchovy fishing sector, which fell over 30%.

Moreover, Peru had more holidays in March this year compared to 2023 due to the Easter weekend.

These factors, combined with persistent economic challenges, highlight a sluggish recovery for Peru.

President Dina Boluarte continues to struggle with economic growth amidst numerous corruption scandals. The March contraction followed two consecutive months of growth and a recession in 2023.

However, the Central Bank remains optimistic, expecting growth to accelerate in the coming months and projecting an overall increase in production of 3% for the year.

Higher copper prices should support this expansion, as Peru is a significant global producer.

In the first quarter of the year, the economy grew by 1.38% compared to the same period in 2023. The official GDP figures for the quarter will be released soon.

Economic Overview

The decline in March was partly influenced by the severe impact of Cyclone Yaku, which caused floods and landslides, disrupting normal transport routes.

High-frequency indicators from BBVA Research show continued weakness in private consumption and total investment in April.

Scotiabank projected a timid recovery in April, estimating growth of over 2% once the effects of social conflicts and Cyclone Yaku diminished.

Early indicators, such as electricity production and public investment, suggest increased internal demand and private consumption in April.

Inflation remains a concern, but the Central Bank aims to keep it within target ranges. BBVA Research expects inflation to end the year at around 2.6%, with further reductions in 2025.

Political instability and external factors, like high global interest rates and potential climate impacts, add uncertainty to Peru’s economic outlook.

However, the overall sentiment is cautiously optimistic, with signs of recovery on the horizon.