Itaú BBA - PERU – Economic activity deteriorated further in October

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PERU – Economic activity deteriorated further in October

Dezembro 16, 2019

Monthly GDP was dragged by construction output and non-primary manufacturing activity

Monthly GDP was below market expectations in October. The monthly GDP proxy grew 2.1% year-over year in October (from 2.2% in September), below our forecast of 2.7% and market expectations (as per Bloomberg), taking the quarterly growth rate to 2.6% in October (from 3.0% in September). 

Economic activity was dragged by construction output and non-primary manufacturing sector. Non-natural resource sectors, which account for three quarters of the economy, decelerated to 1.9% year-over-year in October (from 3.3% in September), taking the quarterly growth rate to 2.8% in October (from 3.4% in September). The non-natural resources sector was dragged mainly by a deceleration in construction output (1.2% year-over-year in October, from 3.8% in September), non-primary manufacturing (-3.6%, from 1.4%) and services (3.6%, from 3.8%).  The slowdown in construction output was associated to a contraction of public capital expenditure execution of local authorities (despite an improvement at the federal government level). In contrast, natural resource sectors recovered to 2.5% year-over-year in October (from -1.7% in September), taking the quarterly growth rate to a still-low 1.6% in October (from 1.4% in September). Looking at the breakdown, fishing output contracted 0.7% year-over-year in October (from 14.3% in September), while primary manufacturing and mining output expanded 7.3% (from 1.5%) and  0.7% (from -3.4%), respectively.

At the margin, GDP momentum remained soft. Using Peru’s statistics institute seasonally adjusted series, the GDP quarter-over-quarter annualized growth rate stood at 2.9% in October, practically unchanged from September.

We forecast GDP growth of 2.3% for 2019, improving gradually to 3.2% in 2020. We expect an improvement in local government expenditure execution and an expansionary monetary policy to support economic activity next year. On the other hand, softer external demand, particularly from China, will curb economic expansion. Social conflicts in the Mining sector are also a drag on investment.


Julio Ruiz


 



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