Peru: GDP growth clocks softest pace in a year in the fourth quarter; 2021 growth hits record high
According to a preliminary reading, GDP growth softened to 3.2% year-on-year in the fourth quarter, from 11.4% in the third quarter. As such, Q4’s reading marked the softest expansion in a year, but nonetheless put growth for 2021 as a whole at a stellar 13.3%, recovering strongly from the 11.0% contraction suffered in 2020. Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, economic growth moderated to 0.6% in Q4, following the previous period’s 2.5% increase.
The year-on-year slowdown was broad-based, with a less favorable base effect weighing on figures. Domestically, private consumption growth eased to 5.5% in Q4 (Q3: +11.8% yoy), marking the weakest expansion since Q1. Meanwhile, public consumption dropped at the sharpest pace since Q3 2020, contracting 2.4% (Q3: +15.0% yoy), while fixed investment contracted 3.3% in Q4 (Q3: +25.6% yoy), marking the worst result since Q3 2020.
In the external sphere of the economy, exports of goods and services growth fell to 6.5% in Q4 (Q3: +12.7% yoy), marking the weakest reading in three quarters. In addition, imports of goods and services growth eased to 8.2% in Q4 (Q3: +24.5% yoy). Consequently, the external sector detracted 0.3 percentage points from the overall print, softening from the 2.2 percentage point deduction recorded in Q3.
Looking ahead, GDP growth is set to slow markedly in 2022, in part due to a less favorable base effect weighing on figures. Ongoing political uncertainty is likely to continue tempering economic output as investment decisions are evaluated against the backdrop of a weak presidency and continual friction between the executive and the legislative branches, which constrains governability. Moreover, while in recent months the sol has steadily regained some of the value it lost against the U.S. dollar in the second half of 2021, it is still weaker than its pre-pandemic level, adding extra inflationary pressures through higher import costs and, in turn, putting further stress on household budgets. As a consequence, consumer spending growth is likely to fall from last year’s elevated levels, dragging on overall growth.
Commenting on the outlook for growth, Diego W. Pereira, economist at JPMorgan, said:
“For 2022 we expect real GDP to gain 2.7% yoy. The annual GDP?projection is consistent with growth of just 1.0% within the year, still well below potential on still subpar domestic demand growth, explained by limited private sector capex growth associated with the aforementioned lingering regulatory uncertainty. Reducing uncertainty would help investment to gain levels consistent with higher main commodity prices (e.g., copper), providing an impulse to growth. […] We calculate that political, institutional and regulatory uncertainty cost about 3–4% percentage points of GDP growth in 2021–2022.”
Miguel Leiva, analyst at Credicorp Capital, commented:
“Looking forward, we expect the economy to grow around 2% yoy in Q1 2022 (Q1 2021: 4.5%). Additionally, we consider that the Peruvian economy will grow around 2.5% in 2022. Thus, although private investment could contract, private consumption would grow by about 3%, while exports would increase around 7% (due to the full operation of Minas Justa copper projects and Toromocho expansion, as well as the start of Quellaveco).”