PERU – Soft activity in 2Q21, amid a lower fiscal deficit and narrower current account balance

We expect GDP growth of 10.2% for 2021

Julio Ruiz


While mobility measures increased in May and June supporting activity recovery, soft sequential 2Q21 reflects still tight social distancing measures in the beginning of the quarter (April). According to the Central Bank’s (BCRP) data, GDP grew 41.9% year over year in 2Q21 (from 4.5% in 1Q21), reflecting a favorable base effect (start of strict social distancing measures a year ago). At the margin, looking at the seasonally adjusted data reported by the BCRP, the economy fell by 0.1% quarter-over-quarter (non-annualized) in 2Q21.

Final domestic demand growth stood at 47.5% year-over-year in 2Q21 (from 9.4% in 1Q21), supported by both private (46.0%) and public (56.0%) demand. Within public demand, public consumption grew 30.2% (from 9.3%), while public investment grew at a high 251% (from 23.9%). Private consumption recovered further in 2Q21 (28.3%, from 2.0% in 1Q21), while private investment expanded 162% (from 36.8%). Finally, exports grew 48.8% (from -2.8%), while imports were up 44.1% (from 3.1%).

We expect GDP growth of 10.2% for 2021, supported by a positive carryover, still expansionary monetary policy, and better terms of trade. On the other hand, uncertainty from the political environment and a possible delay in the execution of public capital expenditure due to the transition between administrations will likely curb sequential growth. A resurgence of the outbreak with a still low percentage of the population vaccinated, leading to a retightening of social-distancing measures, is also a downside risk to our outlook.

On another note, Peru’s current account balance (CAB) deteriorated in 2Q21, dragged by higher net income payments.  On a 4-quarter rolling basis, the current account balance stood at a deficit of 0.9% of GDP in 2Q21 (down from the surplus of 0.1% in 1Q21). While the trade balance improved to 5.5% of GDP in 2Q21 (from 4.7% of GDP in 1Q21) supported by better terms of trade, the services balance (-2.3% of GDP, from -2.1% of GDP) and net income payments (5.8% of GDP, from 4.4% of GDP), mainly reflecting profits of foreign firms investing in Peru, deteriorated. On the financing side, net foreign direct investment improved to 1.9% of GDP (from 1.6% of GDP).

Finally, fiscal accounts improved further amid the recovery of activity. On a 12-month rolling basis the nominal fiscal deficit reached 6.3% of GDP in June (from a deficit of 8.9% of GDP end of 2020), while the primary fiscal deficit stood at 4.9% of GDP (from a deficit 7.3% of GDP). The improvement in the fiscal balance was driven by a recovery of fiscal revenues (due to activity recovery). Likewise, public debt ratios improved in 2Q21, with gross and net public debt standing at 33.9% of GDP (from 34.7% of GDP in 4Q20) and 20.8% of GDP (from 22.3% of GDP), respectively. 

Julio Ruiz