A growing consumer base and robust mining and infrastructure project pipelines inform our view that Peruvian growth will be among the strongest in Latin America over the medium term. Domestic demand will become an increasingly important driver of growth in the coming years. As such, we believe the telecoms, utilities and financials sectors have significant long-term growth potential. We expect President Ollanta Humala's administration to increase social spending over the coming years, leading to moderate nominal fiscal deficits. That said, our medium-term revenue outlook remains relatively bright on the back of rising exports and a growing consumer base.
Major Forecast Changes
Following strong economic data in the year to date, as well as indications that private consumption and fixed investment will bolster economic activity more than we had previously expected in the next few years, we have revised up our 2012 and 2013 growth forecasts for Peru. We now forecast real GDP growth of 5.6% (from 4.8%) in 2012 and 5.2% (from 4.8%) in 2013.
Given a sharp deterioration in trade data in recent months, due in part to slowing economic growth in China, we have substantially revised our current account forecasts for Peru to reflect wider deficits in 2012 and 2013. We forecast Peru's current account deficit to come in at 2.8% of GDP in 2012 (from 1.7% previously) and 3.2% in 2013 (1.5%). Although we expect the country's financial account surplus to remain off its recent highs for the foreseeable future, we believe it will comfortably offset the current account shortfall.
While we maintain our view for Peru's central bank to hold the policy rate at 4.25% for the remainder of 2012, we are now calling for 25 basis points of cuts in 2013. This is underpinned by our view for slower economic growth in Peru next year, due in part to the continued deceleration of China's economy, as well as more moderate inflation. As such, we believe Peru's central bank will be encouraged to step in to provide stimulus to the domestic economy next year.
Table of Contents
Executive Summary
Core Views:
Major Forecast Changes:
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Humala To Remain In The Hot Seat
Intensifying social unrest in Peru has caused us to downgrade our short-term political risk rating for the country In addition, we see
rising potential for such conflicts to impact policymaking in the coming months as the ruling Gana Perú coalition dwindles and President
Ollanta Humala's approval ratings continue to fall
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Mining Disputes Main Threat To Stability
Peru's long-term political stability is undermined by key structural risks, most prominently associated with mining and hydrocarbon
exploration in the country's 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
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Strong Data Prompts Growth Upgrade
We have revised up our 2012 and 2013 real GDP growth forecasts for Peru, as we believe domestic demand and investment will
bolster growth more than we previously expected over the coming years Furthermore, given the substantial deterioration in trade data,
including some weakness in import growth, we have revised our forecasts for real import and export growth
TABLE: ECONOMIC ACTIVITY, 2011-2016
Monetary Policy
Easing To Commence In 2013
We maintain our view that Peru's central bank will hold the policy rate at 4 25% this year, as supply-side price pressures ease over the
coming quarters However, given our expectations of slower economic growth in Peru next year, due in part to our bearish outlook on
China's economy, we now forecast 25 basis points of cuts to the policy rate in 2013
TABLE: MONETARY POLICY, 2008-2016
Balance Of Payments
Current Account Deficit To Widen Sharply
We have revised our current account forecasts for Peru to show a wider deficit for 2012 and 2013, following a sharp deterioration
in trade data in recent months Although we expect the financial account surplus to remain well off its recent highs, we believe it will
comfortably offset the current account deficit, implying a broadly stable balance of payments outlook
TABLE: CURRENT ACCOUNT, 2008-2016
Fiscal Policy
Spending Increases To Drive Modest Deficits
Following more restrained fiscal expenditures in the year-to-date, we have revised our non-financial public sector nominal fiscal deficit
forecast for Peru to 0 4% of GDP from 0 9% previously
TABLE: FISCAL POLICY, 2008-2016
Exchange Rate Forecast
PEN: Moderate Weakness To Follow A Short-Term Bounce
Following a bout of weakness in Q212, the Peruvian nuevo sol has strengthened sharply, and we see potential for further appreciation
over the coming weeks on the back of additional stimulus implemented by the US Federal Reserve
Chapter 3: 10-Year Forecast
The Peruvian Economy To 2021
2012-2021: Solid And Sustainable Growth Ahead
Economic growth in Peru will cool to an average growth rate of 5 5% over the next 10 years, as a slowdown in Chinese economic
growth dampens metals demand and prices in the short term, while fixed investment and private consumption growth moderate from
their recent highs That said, we believe solid macroeconomic policies, substantial commodity wealth and a growing consumer base will
continue to drive investor interest in Peru over the forecast period
TABLE: LONG-TERM MACROECONOMIC FORECASTS, 2014-2021
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
Market Orientation
TABLE: LATIN AMERICA ANNUAL FDI INFLOWS
TABLE: TRADE AND INVESTMENT RATINGS
Operational Risk
Chapter 5: Key Sectors
Pharmaceuticals
TABLE: PHARMACEUTICAL SALES INDICATORS, 2008-2016
TABLE: PRESCRIPTION DRUG SALES INDICATORS, 2008-2016
TABLE: PATENTED DRUG MARKET INDICATORS, 2008-2016
TABLE: OTC MEDICINE SALES INDICATORS, 2008-2016
TABLE: GENERIC DRUG SALES INDICATORS, 2008-2016
Telecommunications
TABLE: TELECOMS SECTOR – INTERNET, 2009-2016
TABLE: TELECOMS SECTOR – FIXED LINE, 2009-2016
TABLE: TELECOMS SECTOR – MOBILE, 2009-2016
TABLE: TELECOMS SECTOR – ARPU (PEN), 2009-2016
Other Key Sectors
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS, 2008-2016
TABLE: AUTOS SECTOR KEY INDICATORS, 2009-2016
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS, 2008-2016
TABLE: OIL AND GAS SECTOR KEY INDICATORS, 2008-2016
TABLE: FREIGHT KEY INDICATORS, 2009-2016
Chapter 6: BMI Global Assumptions
Global Outlook
TABLE: GLOBAL ASSUMPTIONS, 2011-2016
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST, 2010-2013
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST, 2010-2013 49
