Resilient Private Consumption, Natural Gas Exports To Drive Peruvian Growth In 2022  

 

• Fitch forecasts that the Peruvian economy will grow 2.7% in 2022, up from the 2.4% previously forecast. While this would make Peru among the fastest-growing economies in Latin America this year, mounting headwinds in H2 2022 will keep growth below the 3.2% average that Peru recorded from 2015-2019.
• Private consumption growth will remain strong in the coming months as a result of easing inflation, falling unemployment, and income support measures. In Q2 2022, private consumption remained robust at 4.6% y-o-y, down slightly from 4.8% in Q1 2022, indicating that consumers were less deterred by rising inflation than previously anticipated.
• Notably, the Agency forecasts that inflation will slow from 8.7% currently to 7.4% by the end of 2022, which will increase purchasing power and private consumption. In addition, a tightening labour market in Q2 2022 will support spending as real wages rise.
• A decline in total exports will be slowed by elevated demand for energy globally, which supported robust natural gas exports and hence growth in recent months. In addition, investment growth will support the expansion. In Q2 2022, investment grew by 2.5% y-o-y, recovering from a 5.5% contraction in Q1, as the Banco Central de Reserva del Peru’s (BCRP) more gradual hiking cycle kept borrowing costs lower.
• However, risks to the growth forecasts remain to the downside. That is, should inflation ease more slowly in the coming months, the BCRP may elect to hike rates beyond its September meeting, tempering private consumption and investment growth. In addition, weaker growth in China could place additional strain on external demand, capping headline growth.

(Source: Fitch Solutions)