Itaú BBA - PERU – Economic activity deteriorated in 2Q19

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PERU – Economic activity deteriorated in 2Q19

agosto 15, 2019

Non-natural and natural resources sectors decelerated in 2Q19

Economic activity in June was slightly above market expectations. The monthly GDP proxy grew 2.6% in June (from 0.6% in May), above our forecast of 2.4% and market expectations of 2.5% (as per Bloomberg), taking the 2Q19 growth rate to 1.1% (from 2.3% in 1Q19). 

Economic activity in 2Q19 was dragged mainly by fishing output, while construction sector improved. Non-natural resource sectors, which account for three quarters of the economy, improved to 3.5% year-over-year in June (from 2.4% in May), taking the 2Q19 growth rate to 2.8% (from 3.3% in 1Q19). Looking at the breakdown, construction output recovered to 7.3% in 2Q19 (from 1.8% in 1Q19), associated to an improvement in public investment execution, while non-primary manufacturing contracted (1.6%, from 3.2%). Meanwhile, commerce sector (2.7% in 2Q19, from 2.4% in 1Q19) improved somewhat, while services sector decelerated (3.8%, from 4.0%). In turn, natural resource sectors contracted 0.5% year-over-year in June (from -4.5% in May), taking the 2Q19 growth rate to -4.5% (from -1.3% in 1Q19). Natural resource sector was dragged mainly by fishing output in 2Q19 (-30.1% year-over-year, from -20.5% in 1Q19) due to a negative calendar base effect (fishing season started later this year, compared to 2018), which in turn affected also primary manufacturing (-17.7%, from -13.0%). Moreover, mining production deteriorated in 2Q19 (-2.5%, from -0.6% in 1Q19). 

At the margin, GDP improved, but momentum remained soft. Using Peru’s statistics institute seasonally adjusted series, the GDP quarter-over-quarter annualized growth rate stood at 1.6% in 2Q19 (from -2.5% in 1Q19).

We now expect GDP growth of 2.8% (before: 3.1%) for 2019. The weakness in the global economic outlook will weigh on Peru’s small and open economy, while political uncertainty will likely affect business confidence and investment outlook. On the other hand, expansionary monetary policy, which could be eased further, will help to support growth in 2020.


Julio Ruiz

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