Peruvian Economy Shows Disappointing Results

Peru’s economy grew 0.94 percent in February, while shrinking 0.3 percent that same month. The economy retracted from a previous expansion of 1.68 percent in January. The figures fell short of analyst expectations of 1.35 percent growth for February.

Peru’s economy grew 0.94 percent in February, while shrinking 0.3 percent that same month. The economy retracted from a previous expansion of 1.68 percent in January. The figures fell short of analyst expectations of 1.35 percent growth for February.

Peru faces additional contraction because many facets of the economy are in free-fall. The construction sector fell to a four-year low, and the industry dipped 9.88 percent in February when compared to February 2014. Also, the mining industry’s sub-standard output dashed government and central bank recovery efforts. The mining industry grinded to its slowest pace since 2009, falling 4.28 percent in comparison to February 2014. The oil and fishing industries face setbacks, but construction and mining are at the heart of the downfall.

Reasons behind the Economic Slump

Power shifts within local governments partially explain the slowdown in numerous mining and construction projects around the country. The slowdown in the manufacturing industry stems from contraction in such areas as metals, oil refining and fishmeal. A three-percent dip in consumer products adds additional woes to the manufacturing sector. Also, landslides and heavy rainfall impacted the nation’s food supply.

Peruvian Authorities Remain Hopeful

Consumer pricing went up 0.76 percent in March, placing the annual rate at 3.02 percent. The slight bump exceeded the central bank’s expectations of a range between one and three percent. The government expects the economy to expand 4.2 percent in 2015, which is considered too rosy by many analysts. Officials find hope in the rising demand of electricity, growing 5.7 percent in March, a hike from four percent in the first two months of 2015. The central bank also entered neutral mode in the wake of a weak currency and sudden inflation.

Central Bank Continues Reform Efforts

The Peruvian central bank continues to manage the economic turmoil, but only to a degree. Banking authorities left interest rates at 3.25 percent. The bank lowered interest rates in January to provide relief to the economy, particularly mining, and authorities cut reserve requirements for commercial banks to stimulate economic growth. The cut will also increase lending in the nation’s own currency, the Sol.

However, Peruvian authorities must not fall into the trap of relying too much on central banking policies to instill growth. Government policy and the private sector create economic prosperity. Peru’s economy faces a host of issues, and the problems will continue until banking and government officials take a more aggressive approach.