Peru: Turning more optimistic on economic performance

PERU - In Brief 27 Nov 2020 by Alfredo Thorne

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With more information following the swearing-in of President Francisco Sagasti and his first announcements, we have decide to revised up our forecast. We are raising our real GDP growth forecast to -12.4%y/y in 2020 from a previous of -13.9%y/y discussed in our latest GSP report; and to 9.7%y/y for 2021 from 6.7%y/y. We are also calling for a stronger PEN/USD and raising the end-2020 spot forecast to PEN3.6 to the USD from a previous of PEN3.7 to the USD. The less-deep recession in 2020 is argued on the back of three developments: the continuation of the economic reopening of the service sector in October on the back of less infections; better-than-expected execution in public works in October; and November; and strong performance on commodity prices. Our new forecast still assumes an economic deceleration in November and December due to a slow start by the new government and real GDP advancing only 1%m/m, sa in November and falling 1%m/m in December, after advancing 6%m/m in October.For 2021 the forecast is more challenging due to the April 11th Presidential and Congressional elections, and the highly likely run-off election in early June. We anticipate a positive 1Q21, followed by a more negative 2Q21 due to the election uncertainty. This brings the 1H21 real GDP to negative territory and falling 1.6%q/q, saar. Assuming the election results into a moderate government, we forecast real GDP to advance 4.7%q/q, saar. This brings the full-year to our 9.7%y/y forecast. Although our forecasts still anticipate a rebound in private consumption and investment, the high political uncertainty would contain expectations and most of the burden is placed on government expenditure ...