Peruvian Economy Surpasses Expectations in the First Quarter

Peru’s economy expanded 2.68 percent in March, shattering previous predictions of 2.15 percent. GDP also grew 1.73 percent, which is beyond the government’s estimate of 1.5 percent growth, and the economy increased 0.7 percent on a seasonal level from February to March. Analysts expect Peru to grow around 4.0 percent in 2015.

Peru’s economy expanded 2.68 percent in March, shattering previous predictions of 2.15 percent. GDP also grew 1.73 percent, which is beyond the government’s estimate of 1.5 percent growth, and the economy increased 0.7 percent on a seasonal level from February to March. Analysts expect Peru to grow around 4.0 percent in 2015.

Peru’s growth marks its strongest performance in nearly a year. The nation owes its success to a recovery in mining, which makes up 50 percent of the country’s export revenue. Peru’s mining industry has undergone a heavy downturn, which is why the resurgence is an unexpected surprise to analysts. Mining underwent a 14.71 percent year-on-year boost in March, gains were in copper and gold, increasing 10 percent in output, and the fishing industry rebounded with a 17.74-percent surge. The financial service sector rose 12.11 percent, and retail expanded 0.4 percent, with the agriculture sector growing 1.16 percent.

March’s report has already enhanced the sol currency, and the bank plans to stimulate the economy through decreasing the reserve requirements for the sol to reduce debt in dollar amounts. Further, the bank announced a new policy that would auction off loans in the sol to private banks with funds from the public sector to increase credit and the money supply. Currently, banking officials must tackle the nation’s high inflation rate, standing at 3.02 percent, which is a tad above the central bank’s limit of 3.0 percent.

With all the good news supporting Peru, there are some hiccups along the way. The nation is trying to expand beyond tourism and attract more foreign investment, but various structural reforms are necessary. First, Peru must address its high unemployment rate of 7.9 percent. Officials also need to deal with a $40 billion infrastructure gap that is holding back further development. In addition, lingering problems remain in certain industries, such as energy and mining. Energy production fell 9.6 percent due to slowdowns in crude and natural gas activity.

Even though mining has recovered, including with the opening of two additional copper mines, the industry still hurt by strikes, protests and lower commodity prices. Further, a moderate storm is headed Peru’s way, which could hurt the nation’s recovering fishing industry. Manufacturing output is lagging, falling 7.75 percent, and construction fell 4.22 percent. However, Peru’s current gains will provide a boost to business and consumer confidence, and these improvements may be the momentum the country needs to attract enough foreign investment and trade from the rest of South America and parts of Asia.