Weekly Report - 18 September 2014 (WR-14-37)

PERU| Optimistic 2015 budget. On 10 September in his last act as Peru’s economy & finance minister, Luis Miguel Castilla, presented the draft 2015 budget to the national congress. Based on the expectation that the economy will make a full recovery from its current economic slowdown, the budget forecasts GDP growth of 6% next year. The Peruvian economy has undergone a marked slowdown since mid-2013, sparking concerns that after more than a decade of posting 6.5% average growth, it is now running out of steam. However, in presenting the PEN130.62bn (US$46.48bn) budget, Castilla said that while the slowdown was more pronounced than expected, with official growth forecasts for this year revised down to 4.2% from 5.7%, this would be fully reverted next year, with the economy to resume its medium term growth trend. Castilla also pointed to encouraging signs that global economic activity is picking up, which should help boost falling demand for Peruvian exports. He added that in support of the recovery the government led by President Ollanta Humala would continue to adopt “appropriate measures” to ensure that Peru’s economy does not stagnate. Castilla said that the 2015 budget, nominally 12% higher than this year’s, was part of government efforts to inject more public funds into the economy to “close gaps” and further stimulate growth. Besides a weaker demand for Peru’s exports, the low level of domestic economic activity this year has been attributed to a fall in private investment, estimated to have decreased by as much as 5% since the start of the year. According to Castilla, US$2.68bn of the 2015 budget has been earmarked for government investment programmes with an additional US$769m assigned for the economic and social sectors. In keeping with the government’s key objective of promoting ‘growth with social inclusion’, Castilla also noted that 40% of the budget would go on promoting social development with a focus on education, health and national security. The problem for the Humala government is that, while positive, the latest domestic economic figures are far from encouraging. The day after Castilla quit and was replaced by Alonso Segura Vasi, on 15 September the national statistics institute (Inei) released the latest official growth figures for July. While the 1.16% July growth figure was four times higher than the 0.3% registered in June (the lowest monthly rate since 2009), prompting the new minister to declare that the slowdown had bottomed out, it was still below the 1.95% consensus market forecast. While most sectors showed an increase in activity, key areas like manufacturing (-5.72%), mining (-1.61%) and construction (-6.02%) were all down. The latest Inei figures led local analysts to again cut their growth projections for 2014 to 3.9% and for 2015 to 5.5%, both lower than the revised official budget projections.

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