1. NS4540 Winter Term 2018 Peru’s Economy
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2. Overview I Peru has a turbulent macroeconomic and political history
In the late 1980s, Peru suffered a deep economic crisis and experienced hyperinflation
Also there was a guerrilla war between the government and the Maoist Shining Path in the 1980s and 1990s
However in the past decade Peru has become one of the fastest growing economies in Latin America
Both investment and consumption have grown rapidly
Driven by strong commodity exports and
Appropriate economic policies.
Despite a recent slump in GDP growth, investment in new mining projects is likely to continue supporting growth in the coming years

3. Overview II
However some mining projects remain highly controversial and face public opposition
Partly related to Peru’s high level of (income) inequality which has both geographic and ethnic aspects
The number of people that have an income below the national poverty line remains substantial in spite of rapid improvement realized in recent years.
Macroeconomic economic position relatively strong
Public debt is very low and
Fiscal deficit is manageable
Balance of payments risk is limited despite large current account deficit
Deficit filled almost fully by FDI inflows

4. Outlook III Country has a large stock of foreign exchange reserves
Peru primarily exports commodities wich makes country vulnerable to exteral price shocks
More diversification of the economy is needed to allow economic and social developemt of the country to continue in long term

5. Growth Trends

6. Governance Trends

7. Trends in Economic Freedom

8. Trends in Trade Freedom

9. Recent Developments III
Economic growth continues to slow down
Economy of Peru seems struggling to get back on track with sustaining GDP growth levels
Country had been growing in excess of 5% until 2014
Drop in growth rate has been caused by
Declining commodity prices
Disappointing production levels of the main export commodities (copper and gold) due to production disruptions
Manufacturing and construction sectors continued to be depressed
Fishing industry expected to be adversely impacted by El Nino effects and
Weaker private investment

10. Recent Developments IV
Government has responded to lower growth in an unfavorable external environment by
Introducing (April 2015) a new stimulus package equal to 0.8% of GDP
Hopes to boost consumer expenditure and stimulate the economy from within.
National government continues increasing public spending to finance major infrastructure projects
Central Bank of Peru has keep interest rates low and lowered reserve requirements to make more money available for investment

11. Possible Problems I
Lower revenues from commodity exports and USD strength are weighing heavily on the Peruvian currency
Depreciating last several years
Problem because of the still high dollarization of the economy
At the end of July % of credit was USD denominated
An improvement from 70% in 2005
As dollarization is also present on the deposit side at 43% at end of 2014 does not pose a direct risk to banks
However currency mismatches with debtors could lead to higher delinquency rates

12. Possible Problems II

13. Possible Problems III

14. Challenges Ahead
Center-left party whose term ended in mid-2016 was very unpopular
Reforms have not met the population's expectations
The current center-right party is dogged with corruption charges – Brazil construction company
Guerrillas still active in mountains with their coca production
With glaciers melting, agriculture coming under water stress.
Business climate improving due to reduction in bureaucratic procedures and the upswing in privatization that the government is pursuing
Peru will continue to strengthen its links with members of the Pacific Alliance while trying to extend its relationships in Asia beyond China