Opposition prepares for 2026 election; recovery gains speed in Q1; BCRP to pause through May-June
In this report, we summarize our latest forecasts. First, we discuss possible political scenarios. We analyze the recent Cabinet reshuffle, the resignation of Prime Minister Alberto Otárola and the appointment of his replacement Gustavo Adrianzén (our view is that this has changed little). Next, we discuss the institutional and legislative changes in anticipation of the 2026 presidential and congressional elections. The right wing in Congress has tried to benefit from these changes, but although they were biased in the favor of the right, these plans failed to fully succeed.
Then we discuss our economic forecasts. We’ve made two key changes from our December forecast. The first change is for overall economic performance: we’ve turned more positive on economic recovery, and have revised up our full-year 2024 real GDP growth forecast to 2.5% y/y, from 1.7%; and our 2025 forecast to 3%, from 2.8%. We’ve kept unchanged our 2026 forecast, at 3%.
Nevertheless, fiscal performance remains a concern. We still expect the government to miss its fiscal rule. The shortfall will be marginal in 2024, when we forecast the fiscal deficit reaching 2.1% of GDP, compared with the 2% fiscal rule; however, it will widen in 2025 and 2026, when the deficit is forecast to remain at 2%, but the fiscal rule will tighten to 1.5% and 1%, respectively. However, we should acknowledge that Economy and Finance Minister José Arista has pledged to meet the fiscal rule, and it would be prudent to wait to see which measures he implements to this end, before making firm contrary predictions.
On the markets, we retain a constructive view, making only marginal forecast changes. Although the board of the Banco Central de la República del Perú (the BCRP, the central bank) surprised some commentators with its decision to pause at its March meeting, we had been anticipating this pause, and believe that it will extend it until inflation converges back with its official 2% (+/-1%) target. We forecast that the BCRP’s board will resume its cutting cycle between May and June.
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