Peru’s Growth Performs Below Expectations, but Plans for Sustained Growth
By admin November 17, 2015


peruFor the past decade, Peru has been one of Latin America’s fastest growing economies. More impressively, Peru was considered to be one of the world’s fastest growing economies in 2011. Between 2005 and 2014, Peru benefited from favorable external factors, sound macroeconomic policies, and structural reforms which resulted in high growth at an average of 6.1 percent and an average low inflation of 2.9 percent.  Peru has also been credited with reducing the country’s poverty rate in half between 2005 and 2014 from 44.6 percent to 22.7 percent. Furthermore, about half a million people escaped poverty in Peru by 2013, according to the World Bank.

However, Peru’s economy has recently been set back as a consequence of the slowdown of the global economy. The decline in raw material prices, China’s economic downturn, and the Federal Reserve System’s rate hike has created obstacles for Peru’s economic growth potential. In September, the Peruvian President of the Central Bank, Julio Velarde, projected a growth rate of more than 3 percent for September, predicting manufacturing, construction, fishing, and mining sectors to perform a bit better.

Despite these modest predictions, the Peruvian economy performed below expectations for the second month in a row as Peru’s economy only grew 2.95 percent in September. According to the National Institute of Information and Statistics (INEI), mining was a key contributor to the 2.95 percent growth due to advances in the country’s cooper output. It is notable, however, that Peru outperformed many of the other countries in the region by maintaining 74 months of consecutive growth. Furthermore, Peru’s Economy and Finance Minister, Alonso Segura, estimates that the Peruvian economy will continuously grow above 3.5 percent over the fourth quarter of the year which will be mainly driven by the mining and fisheries sectors.

Segura further notes that public investment has been growing at an annual rate above 18 percent which will strengthen the long term growth of the country.  According to the Economy and Finance Ministry, Peru’s public investment projects amount to $6.441 billion dollars so far in 2015. Moreover, the Peruvian President, Ollanta Humala, invited the Chinese Prime Minister, Li Keqiang, to visit Peru earlier this year to discuss plans to invest in a trans—oceanic railway that would link Brazil’s Atlantic coast with Peru on the Pacific.  In May, Brazil, China, and Peru signed a memorandum of understanding to carry out a feasibility studies into the railway.

Although campaigners are concerned that the railway would destroy parts of the Amazon rainforest, the Peruvian government seeks to accelerate its development, particularly though building major infrastructure projects according to a leading Peruvian economist, Roberto Urrunaga. Moreover, whether the railway project moves forward or not, the World Bank projects Peru to progressively recover growth at an average rate of 4 percent in 2016-2017.  This recovery is due to  Peru’s implementation of countercyclical fiscal policies to support aggregate demand and the country has applied structural reforms that will assure the continued confidence of private investors. The World Bank notes, however, that the Peruvian government should develop public policies that accelerate decentralized growth and focus on the Peruvian population that continues to be vulnerable to economic shocks in order to achieve stronger, more sustainable economic growth.


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