The peruvian economy. By: Carlos Porras & Juan Mariño Over the years, the Peruvian economy has experienced major ups and downs. Growth fell from 4.0% in the previous year to 2.3% in 2019. External demand for traditional exports weakened and prices fell, while transition events affected output in primary sectors such as mining, hydrocarbons and fishing. The non-financial public sector budget deficit declined from 2.3% of GDP in 2018 to 2.0% of GDP in 2019, in line with expectations, reflecting a decline in public investment and a pick-up in revenue due to fiscal control measures. Meanwhile, the annual growth rate of credit to the private sector fell by 1.4% in the first half of the year. Broken down by credit category, commercial credit growth slowed over the year (from 7.7% in 2018 to 6.5% in October 2019), while mortgage credit continued to grow by around 9%. On the other hand, consumer credit remains the most dynamic category, with growth of 13.1% in 2018 and 13.0% in 2019,Economic Commission for Latin America and the Caribbean (ECLAC) (+8.4% in October), business credit growth slowed during the year (from 7.7% in 2018 to 6.5% in October 2019), mortgage credit continued to grow by about 9%, and consumer credit remained the most dynamic category, with growth of 13.1% in 2018 and 13.0% in 2019, with loans for transport equipment and credit cards being the most contested." In the first nine months of 2019, the real exchange rate appreciated by around 9%. The real exchange rate increased slightly to an average of 2.5%. The average deficit was 2.5% of GDP. The trade balance for the full year deteriorated to 1.6%, while imports fell slightly to 3.0% (from 0.7 percentage points in 2018 to 0.9 percentage points in Q3), due to strong mining activity. Mining sector dynamics. The contribution of public consumption increased slightly (from 0.3 percentage points to 0.5 percentage points). Lower imports had a negative impact on growth (-0.4 percentage points in Q3 2019, compared to -0.9 percentage points in Q3 2018). A negative contribution to growth from weaker exports (from +1.1 percentage points in Q3 2018 to -0.1 percentage points in Q3 2019) Inflation increased to an average of 2.2% in the first ten months of 2019 (from 2.1% in Q3 2018). 1.3% y/y), mainly due to higher prices for services (education and hotels and restaurants. households). It is expected to be in the middle of the volatility range set by the central bank at the end of December (tolerance of 2.0% ± 1.0%), as inflationary pressures are expected to be low (lower (lower prices of imports such as oil, wheat and soybeans, controlling labour costs through migration and a negative output gap should remain in the middle of the central bank's target range (2.0%)). The average domestic employment rate remained stable at 72.2% in the first three quarters of the year. At 72.2%, it was unchanged from 2018, with an average unemployment rate of 4.2%. However, increased private investment (especially outside the mining sector, given its slow recovery) will play an important role in addressing the difficult external and internal situation. The Peruvian economy is already expected to continue to contract by 12.9% in 2020 (after a 2.2% growth in 2019) as a result of the recession caused by the coronavirus (COVID-19) outbreak. The contraction in GDP of Peru's trading partners has significantly weakened external and domestic demand, which has declined as a result of reduced domestic consumption and the disruption of investment projects. The fall in aggregate demand was exacerbated by the huge impact on the economy caused by the month-long blockade. Efforts were made to mitigate the fall in domestic demand and to keep financial markets and payment systems functioning. In 2020, the Peruvian economy is expected to contract by a further 12.9% (after a 2.2% growth in 2019) as a result of the recession caused by the coronavirus (COVID-19) outbreak. The decline in GDP of Peru's trading partners has significantly weakened external demand, while domestic demand has fallen sharply due to falling domestic consumption and the suspension of investment projects. The fall in aggregate demand was exacerbated by the huge impact on the economy of several months of production disruptions due to the embargo. Efforts were made to mitigate the fall in domestic demand and to keep financial markets and payment systems functioning. The local currency (sol) depreciated due to uncertainty and low interest rates. The current account deficit narrowed as a result of public debt and central bank intervention, and foreign exchange reserves increased despite a decline in foreign investment and other capital flows. In addition, inflation remained within the targeted range (around 2.2%). Despite a weaker language during the year, inflation remained within the target range (around 2.1%). The economic slowdown led to a sharp fall in non-financial tax revenue, which fell by 17.2% in nominal terms in the first 11 months of the year. At the same time, non-financial expenditure increased by 10.3%. Transfers to households (two general subsidies were paid during the year), subsidies to businesses and measures to combat the epidemic contributed to the increase in fixed expenditure. On the other hand, capital expenditure. On the other hand, capital expenditure decreased due to the closure of public services for several months. In the 12 months to November 2020, the general government deficit excluding taxes increased to 7.7% of GDP (1.6% in the previous year) and public debt will reach almost 35% of GDP by the end of 2020 (26.8% in 2019). This decline was accompanied by an acceleration in annual credit expansion, which rose from 7.2% in January to 13.1% in October. (A business loan promotion program supported by the Peruvian government's response guarantee program. The aim is to improve business liquidity. (Between January and November, the value of the sun rose from 3.2 soles to the dollar to 3.6 soles to the dollar, but with less volatility than regional currencies) to maintain liquidity and avoid currency mismatches. The current account deficit narrowed to 0.1% in the first nine months of 2020 from 2.1% in the previous period. This reflected This reflects a lower surplus for the FIC due to the second quarter closing. Quarter. Over the same period, the real effective exchange rate declined on average by 0.7%. At the sectoral level, most sectors contributed 14.5% to the overall decline in economic activity in the first nine months of the year. In the first nine months of the year. Mining (-2.0 percentage points), manufacturing (-2.0 percentage points) and production (-2.0 percentage points) contributed to the overall decline in the first nine months. Supply fluctuations were recorded in trade (-2.3 p.p.), retail trade (-2.1 p.p.), business services (-1.2 p.p.) and other services (-1.5 p.p.) in the first nine months of the year, which exited the market in a difficult period. The services sector (-1.5 p.p.) faced a supply shock due to the suspension of activity in the context of austerity measures and, although it partially recovered in September, did not reach pre-crisis levels. Accommodation and food services (-1.8%) and transport (-1.6%) remained very weak, while construction (-1.6%) returned to pre-crisis levels in September. On the other hand, financial services (0.5 pp), telecommunications (0.2 pp) and public administration (0.2 pp) made a positive contribution to GDP growth due to stronger demand in the post-crisis period. As for aggregate demand, private consumption fell as output and income deteriorated (-8.0 p.p. of GDP growth in the first half of 2020). Private investment (-5.6 p.p.) was affected by the freeze and heightened uncertainty. Public investment also fell (-1.9 pp) due to the suspension of infrastructure measures, while public consumption was the only component to contribute positively after the measure (+0.2 pp). Public consumption was the only component contributing positively to the reduction of the epidemic and crisis after the measure (+0.2 percentage points). A fall in external demand led to a fall in exports (-6.5 percentage points), while a fall in domestic demand led to a fall in exports (-6.5 percentage points). Domestic demand led to a fall in imports, which partly offset the fall in GDP (+5.1 percentage points of GDP). Inflation remained relatively stable, despite the significant negative impact on domestic demand. The cumulative 12-month change in November was 2.1%. The increase in debt also raises downside risks, especially if external and domestic demand turn out weaker than expected. Peru's economy grew by 13.5% in 2021 compared to a sharp contraction of 11.1% in 2020. Domestic output grew strongly in 2021 and some manufacturing sectors expanded strongly; this was driven by an increase in manufacturing activity, an acceleration in aggregate demand (domestic and external) and statistical performance relative to the baseline. According to the Central Bank of Peru, by the third quarter of 2021, the country's GDP will exceed pre-pandemic levels. Higher food and fuel import prices and land devaluation pushed annual inflation to 5.7% in November, 3.7 percentage points higher than in December 2020. Between December 2020 and November 2021, the annual fiscal deficit fell to 3.3% from 8.9% of GDP, mainly due to an increase in current revenue, lower non-financial expenditure and a decline in the primary deficit of state-owned enterprises. The increase in revenues was mainly due to higher mineral prices, economic recovery and taxes collected from mining companies. The largest increase in government revenue came from taxation, especially general taxation. The largest increase in tax revenues came from tax payments, mainly general taxes, sales taxes and income taxes, mainly from domestic companies and income taxes. Non-tax revenues also increased, mainly due to increased royalties from the mining and oil sectors. The Central Bank estimates that total , non-financial public debt will reach 36.8% of GDP by the end of 2021, 2.1 and 10.0 percentage points higher than in 2020 and 2019, respectively. The increase in debt has also led to changes in the debt structure itself, with foreign currency debt increasing from 31.8% to 54.1% of total debt between 2019 and 2021, while floating rate debt has also increased from 6.2% to 11.0% of total debt. After keeping the base rate at a historically low level of 0.25% between March 2020 and July 2021, the monetary authority will decide in August 2021 to end monetary stimulus and increase the base rate by a factor of five. The cumulative increase will be 225 basis points and will reach 2.5% by the end of 2021. Despite the nominal increase, monetary stimulus remains accommodative and real interest rates remain negative. Moreover, the BCRP has reduced monetary injections since January 2021, which is linked to a reduction in the amount of government-guaranteed loans. In the third quarter of 2021, the country's external sector accounts reported a cumulative current account deficit of 1.2% of GDP for the previous four quarters. This result reflects the strong increase in imports, which in turn was caused by the recovery of domestic demand. The larger deficit in the factor income account has also contributed, given the higher profits obtained by companies involved with foreign direct investment. The financial account registered a surplus equivalent to 6.8% of GDP from January to September 2021, reflecting the sale of foreign portfolio assets, the recovery of FDI in the country, higher net long-term loans and financing from the external public sector . There was a large short-term capital outflow during this period, totaling $4.68 billion in the third quarter. For the year, the BCRP calculates a short-term foreign capital outflow equivalent to 7.4% of GDP, the highest level since annual record-keeping began in 1950. For its part, the trade balance registered a surplus of US$ 10,021 million in the first three quarters of 2021, US$ 5,702 million more than during the corresponding months of 2020. This result reflects the increase in exports from US$ 28,747 million between January and September 2020 to US$ 45,050 million in the period under analysis, largely due to the rise in the prices of industrial metals and the rebound in external demand. after the recovery of global economic activity. Imports recovered in 2021, mainly due to the higher volumes demanded by the growing domestic demand, especially for capital goods and supplies, and the higher prices commanded by oil, industrial supplies and food. The sol continues to depreciate against the dollar and, as of December 15, 2021, the exchange rate had fallen by 12% compared to the end of 2020. In a context of high local and external volatility, the BCRP actively participated in the foreign exchange market through currency swap auctions, the placement of adjustable certificates of deposit and the sale of trading desks. Despite the market intervention policy, as of December 14, 2021, net international reserves had increased by US$3,818 million since the end of 2020, reaching US$78,525 million. Economic activity between January and October 2021 was slightly higher than the same period in 2019, with a year-on-year growth of 16.0%. Recovery in some sectors, however, such as transport and hospitality, is still lagging.GDP is expected to grow 13.5% in 2021, as a result of the normalization of activities after widespread immunization, favorable external conditions - such as healthy terms of trade - and higher levels of internal confidence. In contrast to the situation of economic activity, the recovery of employment remains slow. While the gap from 2019 levels has narrowed as production activities have returned to normal and inoculation has advanced, as of November 2021 there were more than 149,000 job losses remaining from the total employment figures in the same period of 2019. The recovery of the labor market requires continuous progress with the vaccination program and with emergency health control, inoculations have accelerated in recent months and, as of November 30, 66% of the target population had received both doses. The Economic Commission for Latin America and the Caribbean expects the Peruvian economy to grow by 3.0% in 2022. With this, like the rest of South America, Peru will experience a significant decrease in the growth rate compared to 2021, as a result of both the normalization of spending habits and the lifting of the remaining health restrictions, and, at the same time, the effects of structural problems that inhibit growth. Despite the projected growth, certain activities that generate a large number of jobs, such as tourism and hospitality, are not expected to return to their pre-crisis levels in 2022. [ADAPTED FROM: ECLAC. (2019),ECLAC. (2020),(ECLAC, 2021)] REFERENCES: ECLAC. (2019). Preliminary Overview of the Economies of Latin America and the Caribbean ▪ 2019. Economic Commission for Latin America and the Caribbean. https://mail.google.com/mail/u/2?ui=2&ik=2fb73b2bf9&attid=0.27&permmsgid=msgf:1745162959225808281&th=1838107713d2e599&view=att&disp=inline ECLAC. (2020). Preliminary Overview of the Economies of Latin America and the Caribbean ▪ 2020. Economic Commission for Latin America and the Caribbean. https://mail.google.com/mail/u/2?ui=2&ik=2fb73b2bf9&attid=0.25&permmsgid=msgf:1745162959225808281&th=1838107713d2e599&view=att&disp=inline ECLAC. (2021). Preliminary Overview of the Economies of Latin America and the Caribbean ▪ 2021. Economic Commission for Latin America and the https://mail.google.com/mail/u/2?ui=2&ik=2fb73b2bf9&attid=0.26&permmsgid=msgf:1745162959225808281&th=1838107713d2e599&view=att&disp=inline Caribbean.