Peru’s economy likely shrunk between 0.5% and 0.7% in June, the Central Reserve Bank of Peru (BCR) said, adding that the economy is forecast to have contracted around 0.5% in the second quarter.
“In June, it is estimated that GDP has fallen, but not as much as 1.3% in May,” said the head of the central bank’s economic studies unit, Adrian Armas.
“The BCR will be opening the door to the end of the cycle of reference rate hikes soon. The impact of social conflicts and the coastal El Niño
on the economy was greater than expected,” he added.
The data showed that the Central Bank is anticipating that Peru’s economic activity has fallen by 0.5% in the second quarter, thus closing a negative result in the first six months of 2023.
“The shocks derived from social conflicts and El Niño have had a greater than expected impact on economic activity and domestic demand,” the BCR board said in its informative note of the August monetary program, after maintaining the reference interest rate at 7.75%.
Given some changes in its statement, specialists already expect that at the next meeting the BCR will begin with a cut in the reference rate.
“The fall in the second half of the year is largely explained by a greater negative impact on the fishing sector. In May, fishing fell by more than 70%, and between January and May, the item accumulated a decline of 15.59%,” Armas explained.
Peru’s Ministry of Economy and Finance (MEF) announced that it also expects the second quarter to close down, but updated its projections for June and now anticipates that growth will be closer to 0%. Most economic analysts maintain more pessimistic forecasts for the end of the first half of the year.
Declining growth
On the other hand, Armas said that Peru is in the unfortunate situation of a constant decline in potential GDP, which is the estimated maximum production capacity that an economy can achieve with the sum of the various components of its activities.
Armas emphasized that we are seeing an economic cycle with a heterogeneous evolution among several sectors, with the hardest hit at present being fishing, construction, and primary manufacturing.
“What is clear in the case of our country, unfortunately, is that year after year, potential GDP growth has been declining.” It’s a problem the country has. “We are unfortunately in a situation of lower potential GDP growth,” Armas said.
