Executive Summary.. 5
Core Views...5
Major Forecast Changes.....5
Key Risks To Outlook.....5
Chapter 1: Political Outlook. 7
SWOT Analysis... 7
BMI Political Risk Ratings..7
Domestic Politics .. 8
Humalas Delicate Balancing Act Faltering..8
Perus political tensions are likely to increase in 2012 as President Ollanta Humala struggles to balance the competing interests of
foreign investors (especially in the mining sector) and those of the countrys poor and rural populations. That said, he has implemented
a number of social policies that we believe will address the underlying causes of these tensions and should help to bring about greater
political stability over the longer term.
TABLE: Political Overview.. 8
Long-Term Political Outlook... 10
Mining Disputes Main Threat To Stability...10
Perus long-term political stability is undermined by key structural risks, most prominently associated with mining and hydrocarbons
exploration in the Amazon region. Concerted efforts will be needed to address this issue – along with the ongoing problems of corruption
and coca cultivation – if the country is not to be under increasing threat from populism. Nevertheless, our core scenario is for the
countrys ongoing export-led growth to raise living standards, creating a core of middle-class stability that will act as a buffer against
other risks.
Chapter 2: Economic Outlook.... 15
SWOT Analysis..... 15
Economic Risk...15
Economic Activity.... 16
Pro-Growth Policies In The Face Of Global Headwinds....16
While we forecast Perus real GDP growth slowing compared with the impressive 8.8% headline growth posted in 2010, we expect
growth to remain strong at 6.7% for 2011 (from a previous forecast of 6.2%) and 5.8% in 2012 (from a previous 4.9%). We believe
President Ollanta Humala will pursue pro-growth policies that will support private consumption, compensating for a deterioration of
external demand for the countrys exports in 2012.
TABLE: ECONOMIC ACTIVITY..... 16
Balance Of Payments.. 17
Solid External Account Outlook For 2012...17
We forecast a deterioration of Perus current account deficit in 2012, as a massive investment income deficit offsets a relatively strong
trade performance. Nevertheless, while we recognise the downside risks to exports posed by subdued demand from Asia, overall we
still believe Perus balance of payments picture remains a stable one.
TABLE: CURRENT ACCOUNT ... 18
Monetary Policy.... 19
Rates On Hold Until End-2012..19
We expect the Banco Central de Reserva del Perú to keep interest rates on hold at 4.25% in 2011 and 2012 on the back of slower
GDP growth in 2012 and weakening inflation pressure. While inflation came in at 4.20% y-o-y in October, significantly above the central
banks target range, we expect price growth to decline in 2012 as a result of a variety of factors, including a moderation of food prices.
TABLE: MONETARY POLICY.... 19
Fiscal Policy..... 20
Pro-Growth Policies In The Face Of Global Headwinds....20
While we forecast Perus real GDP growth slowing compared with the impressive 8.8% headline growth posted in 2010, we expect it to
remain strong at 6.7% in 2011, from a previous 6.2%, and 5.8% in 2012, from a previous 4.9%. We believe President Ollanta Humala
will pursue pro-growth policies that will support private consumption, compensating for a deterioration of external demand for the
countrys exports in 2012.
Exchange Rate Policy.. 22
Chapter 3: 10-Year Forecast.. 25
The Peruvian Economy To 2021. 25
Coming Off The Export Boom .....25
Economic growth in Peru will moderate to an average growth rate of 5.1% over the next 10 years. However, we believe that the
economy is well positioned to avoid a painful correction, although we caution that rising levels of political risk present downside risks to
our forecast.
TABLE: LONG-TERM MACROECONOMIC FORECASTS .... 25
Chapter 4: Business Environment. 27
SWOT Analysis..... 27
Business Environment Risk.....27
Business Environment Outlook.. 28
Introduction ..28
Institutions ... 28
TABLE: BMI Business And Operation Risk Ratings... 28
TABLE: BMI Legal Framework Rating... 29
Infrastructure ... 30
TABLE: Labour Force Quality..... 30
Market Orientation ... 31
TABLE: LATIN AMERICA , ANNUA L FDI INFLOWS..... 31
TABLE: Trade And Investment Ratings..... 32
Operational Risk .. 33
TABLE: TOP EXPORT DESTINATIONS .... 33
Chapter 5:Key Sectors.... 35
Oil & Gas... 35
TABLE: Oil And Gas – Historical Data And Forecasts.. 36
Infrastructure.... 39
TABLE: Peru Construction And Infrastructure Industry Data.. 40
Other Key Sectors.... 43
TABLE: Autos Sector Key Indicators... 43
TABLE: Food and Drink Sector Key Indicators.... 43
TABLE: Pharma Sector Key Indicators.... 44
TABLE: Telecoms Sector Key Indicators... 44
TABLE: Freight Key Indicators.... 45
Chapter 6:BMI Global Assumptions.. 47
Global Outlook.. 47
Eurozone Break-Up Risks Rising ...47
TABLE: GLOBAL ASSUMPTIONS ..... 47
TABLE: DEVELOPE D STATES REAL GDP GROWTH FORECAST .... 48
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS .... 48
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST ... 49