Peru is expected to post a Gross Domestic Product’s (GDP) growth rate of 3.7 percent in 2014 and regaining growth momentum averaging 5.6 percent in period between 2015 and 2016, Fitch Ratings said on Tuesday.
“The strong economic performance will be on the back of the government’s ongoing monetary and fiscal stimulus as well as on the doubling of copper production and increased public investment,” the third-largest credit-rating agency in the United States said in a report released early today.
The study reveals the Peruvian government has moved forward with a concession program for infrastructure (9.1 percent of GDP) and has taken measures to remove bureaucratic obstacles to investment.
In its report which affirmed Peru's sovereign debt ratings at 'BBB+', Fitch warns that downside risks to the growth outlook remain in terms of normalization of U.S. monetary policy, a greater-than-expected slowdown in China and delays in the execution of investment projects.
Furthermore, New York-headquartered Fitch went on to underline that in spite of continued inflationary pressures due to supply shocks and currency depreciation, inflation is likely to average 3.2 percent in 2014 and 2.8 percent in in period between 2015 and 2016.
“High commodity dependence plus the current account deficit has widened, approaching 5 percent of GDP and it is forecast to remain above 'BBB' peers over the rating outlook,” the document says.
Meanwhile, Fitch noted strong foreign direct investment (FDI) flows; relatively manageable external financing requirements (at around 20 percent of international reserves in 2014-2016) and Peru's position as the third-strongest net sovereign external creditor in the 'BBB' category mitigate these vulnerabilities.
“The Humala administration maintains prudent policy-making and a pragmatic approach in order to attract private investment,” the ratings agency in its research report noted.
Fitch added, “Increased political turmoil and ministerial changes do not represent a challenge to the direction of economic policy, but, if prolonged, could weigh on the government's reform agenda and investor confidence”.
(END) LOG/AQR/LOG