The activity of the Peruvian economy left behind two months of meager growth to fall by 1.43% at the end of May, thus recording its biggest drop so far in 2023 and the biggest decline since February 2021.
The National Institute of Statistics and Informatics (INEI) specified that the drop responds to the fishing, manufacturing, construction, and financial sectors, with the first three registering double-digit declines.
“The development of the country’s productive activity was affected by the coastal El Nio conditions that continued in May,” the INEI said in a report.
El Niño Phenomenon maintained a moderate magnitude in May, affecting a series of activities in that period, but how was the final result affected by the sectors most impacted to date?
A crashing fall in fishing
According to the “INEI report,” fishing production in May 2023 registered a decrease of 70.60% compared to the same period in 2022. So far this year, fishing has fallen by 15.59%, and at the interannual level, the item has accumulated a drop of 8.61%.
Specifically, maritime fishing fell by 76.15% in May “due to a lower volume landed of species destined for indirect human consumption or industrial use by -99.29%, specifically anchovy.”
The decline in the fishing sector occurs in the midst of the lower extraction of species of maritime origin for indirect human consumption due to the climatic impact of coastal El Niño Phenomenon and the affectation of the anchovy biomass, the main input for industrial fishing and a key piece of activity in the field.
As a result of the El Niño Phenomenon, the biomass of the anchovy and the available stock of the species show a reduction of more than 30% compared to 2022, according to the Peruvian Sea Institute. The fishing season has not yet been activated because the anchovy species is too young to be harvested.
The Multisectoral Commission for the National Study of the El Niño Phenomenon (ENFEN) maintained the status of “Coastal El Nio Alert” because the conditions of this phenomenon are expected to continue to develop in the northern and central Peruvian seas.
The drop in the fishing industry, however, was not the one that detracted the most from the GDP result. Fishing contributed -0.52% to the result of the performance of economic activity in May, ranking as the fourth sector that had the most weight in the fall of the Peruvian economy in said month.
Manufacturing: The sector that most affected the fall in GDP
The manufacturing sector had the second-largest decrease in the month of May, after falling by 15.59%. Between January and May, Peruvian manufacturing recorded a fall of 4.22%, and in the interannual period, the sector contracted 1.64%.
The case of the manufacturing sector is even more detrimental to the economic situation of Peru. Manufacturing had a -1.87% impact on the result of economic activity in May, thus being the sector that most affected the result of the Peruvian economy in the fifth month of the year.
The rate of decline in manufacturing is the lowest since May 2020, when economic activities in Peru were paralyzed by COVID-19 and the item fell 44.21%. Both the primary and non-primary subsectors fell more, with variations of -29.72% and -10.13%, respectively.
The result of manufacturing is closely linked to what happened in the fishing sector: an almost 30% drop in the primary subsector was due to less activity in the processing and preservation of fish, crustaceans, and mollusks, with a contraction of 80.71% due to the lower production of fishmeal as a result of the lower extraction of anchovy and due to the lower processing of canned fish and shellfish to serve the internal and external markets.
Meanwhile, INEI specified that the non-primary manufacturing subsector decreased by 10.13% in May, the sharpest fall in the last eight months. The setback was due to the lower activity of its three components: the intermediate goods industry at -12.89%, the consumer goods industry at -8.43% and the capital goods industry at -2.59%.
Construction and Financial
The construction category fell 11.04% in May, while in the year it also accumulates a double-digit drop (-10.06%). In the interannual period, the sector is falling by 1.09%.
The construction activity decreased mainly due to the lower internal consumption of cement in (-11.88%) and the decrease in the physical progress of public works in (-8.91%).
In the case of the drop in internal cement consumption, this was due to a lower demand for self-construction and for the development of private works; while the physical progress of public works was affected by the reduction in public investment in construction at the local government level (-28.18%), where new authorities took office this year.
Construction was the second sector that most affected the drop in GDP in May, with -0.68% subtracted from national production. It was followed by the financial and insurance sector, with an impact of -0.64% on the result of economic activity in May.
The financial item fell 9.87% in May and accumulates a fall of 7.42% so far in 2023, amid lower loans and deposits from commercial banks. According to INEI, total commercial bank loans registered a contraction of 7.53%, maintaining a negative trend since April 2022; while corporate loans contracted 12.78%, due to lower loans in national currency (-19.73%).
Agricultural activity continues to decline
One of the items that has suffered the most from climatic shocks and the effects of the higher cost of fertilizers in 2022 has been agriculture, which continues to decline in 2023. In May the item contracted by 6.18%, while between January and May it accumulated a drop of 5.05%.
The agricultural sector had an impact of -0.50 points on the GDP result for May, being the fifth sector that most affected economic performance in that month. The drop in this activity is due to lower agricultural production (-8.31%) and livestock activity (-0.56%).
INEI specified that the production of the agricultural subsector fell due to a lower production of potatoes (-15.67%), coffee (-10.32%), paddy rice (-8.24%), starchy corn (-28.18%), olives (-14.08%), cocoa (-19.04%), alfalfa (-9.73%), and olluco (-25.66%). Said contractions occurred due to lower levels of harvested and planted areas and unfavorable weather conditions.
“Maximum and minimum temperatures predominated on the coast, with significant increases due to the El Nio coastal phenomenon.” In the Andean region, there were rains, hail, and snow due to the presence of the isolated depression at high levels. “And in the Amazon region, cold weather was reported, with a drop in temperature, rainfall, and an increase in winds,” INEI remarked.
