GDP growth gathers steam in Q2

GDP reading: GDP growth picked up to 3.6% year on year in the second quarter from 1.4% in the first quarter, marking the best result since Q1 2022 and above the Latin American average.

Drivers: Household spending increased 2.3% in the second quarter, which was above the first quarter's 1.2% expansion and was driven by lower inflation and higher employment. Public consumption picked up to a 5.7% increase in Q2 (Q1: +3.2% yoy). Meanwhile, fixed investment growth moderated to 2.8% in Q2, following 5.6% in the previous quarter. Double-digit public investment growth was partly offset by weaker private investment. Exports of goods and services contracted 1.8% in Q2, marking the worst result since Q4 2020 (Q1: +2.0% yoy), driven by lower goods exports. Imports of goods and services growth waned to 3.8% in Q2 (Q1: +5.5% yoy).

GDP outlook: Our Consensus is for GDP growth to slow but to continue to outpace the regional average in Q3. Growth should also stay above Peru’s own 10-year average, aided by easing price pressures and interest rates. However, political uncertainty will likely continue to cast a pall over private investment.

Panelist insight: On the reading and outlook, Goldman Sachs’ Santiago Tellez said: “The robust growth readings during the first semester of the year were driven by two factors. First, the dissipation of disruptive but transitory shocks to food supply and seafood manufacturing. Second, accelerated capital spending by incoming local governments who overcame previous budget implementation challenges. We expect the activity momentum to slow during the second part of the year as these temporary tailwinds lose steam. Beyond that, we expect positive but below-trend growth in the remainder of the year driven by still tight external and domestic financial conditions, relatively subdued business sentiment, moderate levels of mining investment, and weak governability conditions that will likely continue to bear on economic activity—especially on the soft private investment dynamics.”

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