Julio Velarde, Governor of the Central Reserve Bank of Peru, highlights the fact that economic growth has averaged more than 5% per annum since 2000, and suggests that there is still room for improvement. “President Kuczynski is planning a new phase of growth based on pushing investment in infrastructure and increasing domestic demand,” he says.
He sees three main economic challenges facing the country. “First, the last Government had a higher deficit than the new Government was expecting, which has meant reductions in public expenditure. Second, Peru – like many countries in Latin America – has been affected by the corruption scandals related to Brazilian companies such as Odebrecht. Third, earlier this year, we had the worst flooding in the north of the country since 1925.”
Indeed, estimates suggest that the floods, which were linked to the El Niño weather cycle, could take more than 1% off growth this year. However, increased spending on infrastructure may offset some of the negative impact.
Velarde points out that, despite these challenges, Peru still has many strengths. Foreign Direct Investment (FDI) into Peru totaled US$2.05b in the first quarter of 2017, an increase of 61% over the same period last year.
There are other indicators of a healthy economic trajectory, too. “In 2015, we had a trade deficit of US$2.9b. Now we forecast a trade surplus of US$4.9b for 2017, because we have been one of the most successful countries in boosting exports, which grew by around 15% during the last 12 months,” says Velarde. He adds that Peru is the world’s second-largest producer of copper, and copper production this year is expected to be 90% higher than three years ago. Textile exports are also beginning to increase.