World Bank maintains Peruvian economic growth forecast at 3.2% for 2022

RIO DE JANEIRO, BRAZIL – According to a World Bank report, external economic conditions will become less favorable for Peru, with slower growth in China, its largest export destination, and a weakening of copper prices.

On Tuesday, the World Bank (WB) maintained its 3.2% growth forecast for the Peruvian economy this year while projecting a 13.2% rebound in 2021, according to the most recent edition of the World Economic Outlook report. Regarding 2023, the entity estimates a 3% growth for Peru.

“In Chile and Peru, strong cyclical rebounds in 2021 are projected to soften in 2022. In Peru, deteriorating business confidence in the context of high political uncertainty, together with the recent reinstatement of the fiscal rule, is expected to be conducive to a slowdown in growth,” states the report published by the WB.

In the last year, the World Bank has been reducing its growth forecasts for the Peruvian economy in 2022, from 4.5% in March 2021 (according to a regional report) to 3.9% last June (the last global outlook report), to 3.2% in October (previous regional report).

“In Chile, the withdrawal of substantial fiscal policy support, including the elimination of short-term boosts from several rounds of pension withdrawals, will sharply slow consumption growth, while investment growth will be constrained by domestic policy uncertainty,” the paper adds.

According to the WB, for Chile and Peru, external economic conditions will become less favorable, with slower growth in China, the largest export destination for both countries, and a weakening of copper prices.

“In sum, growth in 2022 and 2023 is projected at 2.2 and 1.8%, respectively, in Chile, and 3.2 and 3%, respectively, in Peru,” the 240-page report states.

LATIN AMERICA AND THE CARIBBEAN

Growth in the Latin America and Caribbean region rebounded to an estimated 6.7% in 2021, driven by favorable external conditions and various pandemic-related events.

The number of new COVID-19 cases declined sharply across the region during the second half of the year; however, they increased again in late December, despite progress in the vaccination process.

Strong demand in key export destinations (the United States and China), high commodity prices, and continued high volumes of remittances to Central American and Caribbean countries also supported growth in 2021.

Inflation has increased throughout the region, in most cases exceeding the targets set by central banks.

This increase is attributed to demand consolidation associated with the economic reopening, higher food and energy prices, weather-related disruptions in electricity production, and, in some countries, currency depreciation and sharp increases in the money supply.

Several countries, including Brazil, Chile, and Paraguay, are experiencing the worst drought in decades, necessitating more expensive fossil fuels to produce electricity typically generated from hydropower.

Outlook: Regional growth is expected to slow to 2.6% in 2022, and 2.7% in 2023 as fiscal and monetary policy tightens, improvements in labor market conditions continue to lag, and external conditions become less favorable.

The recovery process to pre-pandemic levels of gross domestic product (GDP) will be uneven across the region and protracted in some countries.

Projections to the end of 2023 imply that if GDP figures are weighted, the LAC region will lose ground in per capita income relative to advanced economies and those of East Asia and the Pacific and Europe and Central Asia.

Brazil’s economy is projected to slow to 1.4% in 2022 (due to erosion of purchasing power from high inflation, tightening macroeconomic policy, slowing demand from China, and falling iron ore prices) and then rebound to 2.7% in 2023. Mexico’s growth, meanwhile, is projected to slow to 3% in 2022 and 2.2% in 2023.

Supply chain bottlenecks are expected to persist during the first half of 2022, while external demand will be constrained by slowing U.S. growth, and macroeconomic policy will tighten.

On the other hand, growth in Argentina is projected to slow to 2.6% in 2022 as private consumption subdues as a result of reduced fiscal stimulus and investment declines, although the continued impact of solid growth in 2021 resulted in an improved forecast for 2022.

The strong cyclical rebounds seen in Chile, Colombia, and Peru in 2021 will weaken in 2022 and again in 2023.

In Central America, growth will remain solid in 2022, at 4.7%, due to the improved outlook for Covid-19 vaccination and continued strong inflows of remittances. Also, in most Caribbean countries, growth is expected to accelerate in 2022 due to the expected rebound in international tourism.

Risks: This outlook is exposed to several downside risks, including an abrupt increase in the number of Covid-19 cases, funding and debt-related stress, and disruptions from extreme weather events and natural disasters.

The durability of economic recovery in Latin America and the Caribbean, as elsewhere, depends on controlling the pandemic. Outbreaks of Covid-19, including those caused by new variants of the virus, remain a downside risk even in countries with high vaccination rates.

A sudden deterioration in investor sentiment, especially in an environment of high inflation and large public debt, could lead to debt-servicing difficulties and episodes of capital outflows.

Economic shocks related to extreme weather events, partly linked to climate change and other natural disasters, represent a significant risk to regional growth prospects and the integrity and livelihoods of people living in the region.