Peruvian Current Account Will Narrow Slightly As Import Demand Slows

• Fitch forecasts that Peru’s current account deficit will narrow to 2.5% of GDP in 2022, from, 2.8% in 2021, due to import demand slowing more rapidly than export demand. After the COVID-19 pandemic yielded Peru’s first current account surplus since 2007 in 2020, due to a sharp fall in imports, a strong economic recovery returned the current account to a deficit in 2021. This comes as pent-up demand and pandemic-era stimulus measures drove domestic demand for foreign goods. 
• In Q1 2022, goods imports grew 19.1% y-o-y in nominal USD terms, as lower borrowing costs and the tailwinds from a strong economic recovery in 2021 supported domestic demand. However, it is expected that real GDP growth in Peru will slow to 2.6% in 2022, from 13.3% in 2021, with private consumption, in particular, easing in the coming months.  
• Goods export growth will slow to 11.1% in 2022, from 47.1% in 2021, pushing the overall trade surplus to USD16.8Bn (6.7% of GDP), from USD14.6Bn (6.6%) in 2021. In Q1 2022, exports grew 23.1% in nominal USD terms, largely driven by strong copper demand. While this data shows promising growth in the first months of 2022, multiple factors will weigh on export growth in the coming months. 
• Peruvian goods exports will be particularly impacted by slowing growth in China, the key export market for Peruvian copper, which makes up 40.0% of total exports from Peru. That said, Chinese real GDP growth will slow to 4.5% in 2022 due to health-related lockdowns, limiting demand for Peruvian copper. Additionally, copper prices will dip in H2 2022, which will further undercut the value of Peru’s exports. 
• Against this background, in the coming quarters, it is expected that the slowdown of the Peruvian economy will limit import demand, resulting in a wider goods trade surplus, narrowing the current account deficit.

(Source: Fitch Solutions)