Peru: in need of fresh stimulus
Vigato, Alix
Peru: in need of fresh stimulus - 2023.
6
Driven by the boom in its mining sector and its rigorous macroeconomic policies, since the early 2000s Peru has experienced a period of spectacular development, described as the “Peruvian Miracle”. Nominal GDP in US dollar terms has increased almost fivefold over the last 20 years and the various human development and poverty indicators have made significant progress. This cycle is especially remarkable as it follows two decades, from 1980 to 2000, marked by civil war and economic crisis. Since at least 2016, Peru’s economic dynamism and sound macroeconomic framework have contrasted with the chronic instability of its polarized political system, rife with corruption and rejected by the population. This instability reached a peak during the presidency of Pedro Castillo. Elected in 2021 after an extremely tense campaign, Mr. Castillo was finally ousted by Congress in December 2022 following a “self-coup attempt”, and then saw his Vice President, Dina Boluarte, sworn in as the new president. This episode made her the sixth president in office between 2018 and 2022 and prompted violent protests between December 2022 and March 2023, which left at least 49 people dead. Despite an economic slowdown (contraction of GDP of 0.5% year-on-year in the first half of 2023), the effects of this crisis on activity are expected to remain limited, as has been the case over the last 20 years. Indeed, there has always been a dichotomy between a chronically unstable political sphere and a remarkably resilient economic sphere in Peru. However, the economic outlook for the longer term is less favorable. Indeed, the persistence of a number of structural barriers to growth, including high levels of inequality, a high degree of informality, a low level of financial inclusion, an infrastructure gap, over-centralization and rampant corruption, raises the fear of a gradual slowdown in activity. The inability of the authorities to implement strong and ambitious policies to remove all these barriers suggests that a slowdown in the pace of economic growth is almost inevitable. The International Monetary Fund (IMF) thereby now only estimates Peru’s growth potential at 3%, far from the level of the 2000s, which was close to 7%. Consequently, economic growth would appear to be “falling in line”, converging towards the Latin American average, meaning that the “Peruvian Miracle” seems to be gradually fading away. Thematic area: Macroeconomics Geographical area: Peru
Peru: in need of fresh stimulus - 2023.
6
Driven by the boom in its mining sector and its rigorous macroeconomic policies, since the early 2000s Peru has experienced a period of spectacular development, described as the “Peruvian Miracle”. Nominal GDP in US dollar terms has increased almost fivefold over the last 20 years and the various human development and poverty indicators have made significant progress. This cycle is especially remarkable as it follows two decades, from 1980 to 2000, marked by civil war and economic crisis. Since at least 2016, Peru’s economic dynamism and sound macroeconomic framework have contrasted with the chronic instability of its polarized political system, rife with corruption and rejected by the population. This instability reached a peak during the presidency of Pedro Castillo. Elected in 2021 after an extremely tense campaign, Mr. Castillo was finally ousted by Congress in December 2022 following a “self-coup attempt”, and then saw his Vice President, Dina Boluarte, sworn in as the new president. This episode made her the sixth president in office between 2018 and 2022 and prompted violent protests between December 2022 and March 2023, which left at least 49 people dead. Despite an economic slowdown (contraction of GDP of 0.5% year-on-year in the first half of 2023), the effects of this crisis on activity are expected to remain limited, as has been the case over the last 20 years. Indeed, there has always been a dichotomy between a chronically unstable political sphere and a remarkably resilient economic sphere in Peru. However, the economic outlook for the longer term is less favorable. Indeed, the persistence of a number of structural barriers to growth, including high levels of inequality, a high degree of informality, a low level of financial inclusion, an infrastructure gap, over-centralization and rampant corruption, raises the fear of a gradual slowdown in activity. The inability of the authorities to implement strong and ambitious policies to remove all these barriers suggests that a slowdown in the pace of economic growth is almost inevitable. The International Monetary Fund (IMF) thereby now only estimates Peru’s growth potential at 3%, far from the level of the 2000s, which was close to 7%. Consequently, economic growth would appear to be “falling in line”, converging towards the Latin American average, meaning that the “Peruvian Miracle” seems to be gradually fading away. Thematic area: Macroeconomics Geographical area: Peru
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