Itaú BBA - PERU – Economic activity weakened in 1Q19

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PERU – Economic activity weakened in 1Q19

mayo 15, 2019

Economic activity in 1Q19 was dragged by fishing and construction output

Economic activity in 1Q19 was soft. The monthly GDP proxy expanded 3.2% year-over-year in March (from 2.1% in February), above our forecast of 2.9% and market expectations of 3.1% (as per Bloomberg),  taking the 1Q19 growth rate to 2.3% year-over-year (from 4.8% in the 4Q18). 

Economic activity in the 1Q19 was dragged by fishing and construction output. Non-natural resource sectors, which account for three quarters of the economy, accelerated to 3.5% year-over-year in March (from 2.6% in February), taking the1Q19 growth rate to 3.2% year-over-year (from 4.8% in 4Q18). Looking at the breakdown, construction output weakened in the 1Q19, growing 2.2% year-over-year (from 8.0% in the 4Q18), associated to a fall in public investment in regional and local governments. Meanwhile, commerce (2.4% in 1Q19, from 2.5% 4Q18) and service (3.9%, from 4.5%) sectors decelerated slightly. In turn, natural resource sectors grew 1.8% year-over-year in March (from -0.06% in February), taking the 1Q19 growth rate to -1.2% year-over-year (from 5.1%). Natural resource sectors was dragged mainly by fishing output (-20.5% in 1Q19, from 154.6% in 4Q18), while mining production contracted by less than before (-0.6%, from -2.1%). In turn, primary manufacturing contracted in 1Q19 (-13.1%, from 31.6% in 4Q18), associated to the fall in the fishing output (mainly due to fish flour production).

At the margin, 1Q19 GDP also weakened. According to Peru’s statistics institute seasonally adjusted series, the GDP quarter-over-quarter annualized growth rate stood at -2.5% in 1Q19 (from 7.7% in 4Q18).

We expect GDP growth of 3.8% for 2019, reflecting an escalation of the US/China trade war. Besides global factors, another downside risk for the economy is a prolonged deceleration of public investment at the subnational and regional levels, as most of the newly elected officials who took office in 2019 lack experience. In turn, we expect an expansionary monetary policy support economic activity, which would offset a lower fiscal impulse.

Julio Ruiz

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