Itaú BBA - PERU – Economic activity accelerated in the 4Q18

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PERU – Economic activity accelerated in the 4Q18

February 15, 2019

Fishing output and construction were the main drivers during the 4Q18

Economic activity accelerated in the 4Q18. The monthly GDP expanded 4.7% year-over-year in December (from 5.3% in November), above our forecast (4.3%) and below market expectations (5.0%, as per Bloomberg). As a result, the 4Q18 growth rate stood at 4.7% (from 2.3% in the 3Q18), taking the 2018 growth rate to 3.9% (from 2.5% in 2017).

Fishing output and construction were the main growth drivers during 4Q18. Non-natural resource sectors, which account for three quarters of the economy, grew 4.5% year-over-year in the 4Q18 (from 3.1% in the 3Q18). Looking at the breakdown, construction accelerated to 8.4% in the 4Q18 (from 0.7% in the 3Q18), associated to a recovery in gross fixed public investment, after an execution delay in the 3Q18. Moreover, non-primary manufacturing grew at a decent pace in the 4Q18 (4.0% year-over-year, from 2.5% in the 3Q18), while services other than commerce remained resilient (4.5%, from 4.2%). In turn, natural resource sectors accelerated sharply to 5.1% year-over-year in the 4Q18 (from -0.7% in the 3Q18), boosted mainly by an increase in the fishing output (154.6% in the 4Q18, from 4.9% in the 3Q18) due to a base effect (November and December 2017 the fishing season of anchovy was suspended), which in turn supported primary manufacturing (31.6%, from -1.6%), mainly fish flour. In contrast, mining & hydrocarbon (-2.0% in the 4Q18, from -2.7% in the 3Q18) kept contracting, but improved somewhat.

At the margin, both natural and non–natural resource sectors expanded strongly. Using seasonally adjusted series published by Peru’s statistics institute (INEI), the quarter-over-quarter seasonally adjusted annualized growth rate stood at 8.2% in the 4Q18 (from -2.9% in the 3Q18). Looking at the breakdown, using our own seasonally adjusted series, both natural resource (17.6% qoq/saar in the 4Q18, from -21.3% in the 3Q18) and non-natural resource sectors (7.2% qoq/saar in the 4Q18, from -1% in the 3Q18) accelerated.

We expect economic activity to grow 4.0% in 2019, assuming that trade tensions dissipate (benefiting metal commodity prices and, consequently, investment) and a still-expansionary monetary policy, which would offset lower fiscal impetus. The main risk to our macro outlook is the possibility of a further escalation in the trade dispute between the U.S. and China (Peru’s top two trading partners). Another downside risk is a sharp deceleration of public investment at the subnational and regional levels, as most of the newly elected officials that took office in 2019 lack experience (affecting budget execution).
 

Julio Ruiz



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