Peru Cuts Growth Forecast Due to Declining Copper Investment, Reports Reuters

By Marco Aquino

LIMA (Reuters) – Peru has revised its economic growth forecasts downward for 2023 and 2024 due to adverse weather conditions, declining private investment in mining, and earlier anti-government protests.

According to the economy ministry, the country’s economy is projected to expand by just 1.1% this year, a significant drop from the previous estimate of 2.5%. This adjustment comes after data revealed that the economy contracted during the first half of 2023.

If this forecast holds, it would represent the slowest annual growth rate since 2009, excluding the impact of the pandemic in 2020. The Peruvian Fiscal Council has indicated that this forecast may still be overly optimistic and could face further revisions.

Looking ahead to 2024, the economy is expected to grow by 3.0%, down from an earlier projection of 3.4%.

As the world’s second-largest producer of copper, Peru has experienced a decline in metal prices, with averages falling from $400 per pound last year to an estimated $380 this year, and $360 next year.

While the mining and production of metals are projected to increase by 7% this year, private investment—primarily in the mining sector—is anticipated to decrease by 4.5%. This downturn is compounded by slowdowns in Peru’s construction and manufacturing industries.

The country’s fishing sector is also expected to face significant challenges due to warmer ocean temperatures associated with the El Niño phenomenon, which is adversely affecting the production of anchovy-based fishmeal, in which Peru is a global leader.

The warmer waters are likely to result in heavy rainfall along the Pacific coast, potentially damaging agriculture and critical infrastructure such as roads. The government has identified El Niño as the most immediate threat to Peru’s economy.

Additionally, the ministry has projected the fiscal deficit for this year to be 2.4% of gross domestic product (GDP), an increase from the 1.7% recorded last year. Conversely, the estimated current account deficit has been revised to 1.6% of GDP, down from the previously expected 2.1%.

Despite these challenges, financial markets seemed relatively unaffected, with Peruvian stocks in dollars rising by 1.16% in early afternoon trading.

In a press conference, Finance Minister Alex Contreras emphasized that the government is "intensely" working to reverse the economic trend and noted that inflation is slowing, with expectations for the annual rate to decrease to 4% by year’s end.

He also mentioned interest from companies in various countries, including the U.S., in developing petrochemical projects in Peru.

The government has consistently rejected claims that the country is in a recession, despite experiencing two consecutive quarterly contractions this year, citing methodological distinctions in reporting.