Macro Latam
< VoltarPeru’s GDP slowed in the last quarter of 2019. According to the Central Bank’s (BCRP) data, GDP grew 1.8% year-over-year in the 4Q19 (from 3.2% in 3Q19), taking the 2019 GDP to 2.2% (from 4.0% in 2018). At the margin, looking at the seasonally-adjusted data reported by the BCRP, the economy slowed down to 2.2% quarter-over-quarter (annualized) in 4Q19 (from 3.7% in 3Q19).
Final domestic demand was dragged mainly by weak gross fixed public investment. Final domestic demand deteriorated to 2.0% year-over-year in 4Q19 (from 3.9% in 3Q19), dragged by public demand which contracted 0.5% (from 4.8%), while private demand slowed down to 2.5% (from 4.1%). Within public demand, gross fixed investment contracted 7.7% year-over-year in 4Q19 (from 1.1% in 3Q19), associated to weak public capital expenditure execution in local and regional governments, while public consumption stood at 3.2% (from 6.5%). In turn, private consumption and gross fixed investment decelerated to 3.0% year-over-year in 4Q19 (from 3.3% in 3Q19) and 0.9% (from 7.1%), respectively. Finally, exports recovered to 1.3% year-over-year in 4Q19 (from 0.6% in 3Q19), while imports slowed down to 1.8% (from 2.9%).
We expect GDP to recover at a slow pace (3.3%) in 2020. The impact of the coronavirus outbreak on China’s economy will weigh on Peru’s economic activity. Nevertheless, we expect an economic recovery to be supported by a stronger local government public spending, an expansionary monetary policy and a less uncertain political environment.
On another note, Peru’s current account deficit (CAD) remained narrow, supported by lower net income payments. The current account deficit improved to 1.5% of GDP in 2019 (from a deficit of 1.7% of GDP in 2018), supported mainly by lower net income payments (mainly profits from foreign mining firms), which fell to 4.7% of GDP (from 5.2% of GDP), while remittances remained practically unchanged at 1.4% of GDP. At the margin, using our own seasonally-adjusted series, the CAD remained stable, as it stood at 1.4% of GDP in 4Q19 (practically unchanged from 3Q19). On the other hand, the trade surplus and services deficit deteriorated to 2.9% of GDP in 2019 (from 3.2% of GDP in 2018) and 1.4% of GDP (from 1.2% of GDP). On the financing side, we note that Peru’s CAD is fully-funded by net foreign direct investment (3.5% of GDP in 2019).
Finally, the nominal fiscal account narrowed further. Using 4-quarter rolling figures, the nominal fiscal deficit narrowed to 1.6% of GDP in 2019 (down from 2.3% of GDP in 2018), below the MoF’s fiscal cap of 2.9% of GDP and the government’s estimate of 2.2% of GDP (largely due to under execution of the investment budget at regional and local governments), while the primary deficit improved to 0.2% of GDP in 2019 from 0.9% of GDP in 2018. Looking at the breakdown, we see that total revenues increased by 4.2% year over year in real terms in 2019, with tax revenues growing by 3.7% year over year in real terms. Meanwhile, total primary expenditure grew by 1.0% year over year in real terms in 2019, supported by non-financial expenditure growth (3.1%), but with fixed capital expenditure declining by 6.3%. Turning to public debt ratios, gross debt increased slightly to 26.8% of GDP in 2019 (from 25.7% in 2018), while net debt reached 12.9% of GDP (from 11.3% of GDP). Gross Debt ratio complies with Peru’s fiscal rule, which dictates it cannot exceed 30% of GDP.
Julio Ruiz