The International Monetary Fund (IMF) maintained this year’s economic growth forecast for Peru at 3.7%, according to its report Outlook for Latin America and the Caribbean.
The IMF also kept its forecast for 2017 growth at 4.7%. Both estimates are similar to the April figures predicted by the multilateral organization.
“In Peru, growth has been supported by increased production in primary sectors, as long-planned mining projects came online, and is expected to gain further momentum in 2016 (3.7%) and 2017 (4.1%),” said Alejandro Werner, director of the IMF Western Hemisphere Department.
He affirmed that continuing with education reforms, increasing labor market flexibility, reducing red tape, and rationalizing fiscal decentralization are the policy priorities.
Pacific Alliance
According to IMF, Peru (3.7%) will witness the strongest growth among Pacific Alliance (PA) economies, followed by Colombia (2.5%), Mexico (2.5%) and Chile (1.7%).
“Chile, Peru, and Colombia continue an orderly adjustment in response to a relatively sizable terms-of-trade shock (sharp drop in export revenues),” he underlined.
Peru will also top the growth chart in the PA bloc next year; Colombia (3%), Mexico (2.6%) and Chile (2%) come next.
Werner explained growth performances continue to differ across the region, due to a combination of external and domestic forces.
“Following a rough start at the beginning of the year, both external and domestic conditions in Latin America and the Caribbean have improved. But the outlook for the region is still uncertain,” he stated.
The IMF officer clarified that commodity prices have recovered since their February 2016 trough, but they are still expected to remain low for the foreseeable future.
“This has been accompanied by a brake—or even a reversal—in the large exchange rate depreciations in some of the largest economies in the region,” he added.
Taking all this into account, the growth outlook for the region for 2016 and 2017 has been revised up modestly—by 0.1 percentage points both years relative to the April 2016 forecasts.
“Following the small contraction of activity in the region in 2015, we expect economic activity to contract by 0.4% this year (slightly better than the -0.5% envisaged in the April 2016 projections), followed by a modest rebound in growth in 2017 to 1.6%.
Brexit effect
Most recently, the U.K. referendum on Brexit led to a sharp increase in volatility in global financial markets, especially in equity prices and exchange rates.
“While direct trade exposures of countries in Latin America and the Caribbean to the U.K. are small (on average about 1% of total exports), the region is exposed to the broader slowdown in the rest of the world—through trade and financial linkages—and fickle investor sentiment,” he affirmed.
(END) CNA/CAN/RMB/MVB