Has Peru’s economy entered a technical recession? This is what the specialists say

In the last few hours, the newsrooms of all the media have begun to spread the possibility of a recession of the peruvian economyafter knowing the GDP figures in May released by the National Institute of Statistics and Informatics (INEI).

What does a recession mean? In economic theory, a recession involves a period of at least two consecutive quarters with GDP contractions, translated into falls in production and, frequently, increases in unemployment.

Based on the seasonally adjusted GDP figures published in Weekly Note 23 of the Central Reserve Bank (BCRP), the former head of the National Superintendence of Customs and Tax Administration (Sunat), Luis Alberto Arias Minaya, concludes that the Peruvian economy entered in this stage.

“The recession began in the fourth quarter of 2022. The seasonally adjusted GDP fell 0.2% and 5.3% in this period and in the first quarter of 2023, respectively,” he explained on his social networks.

Using the interannual growth method, the specialist points out that the Peruvian economy contracted 0.4% in the first quarter of 2023. Therefore, growth in the second would also be negative.

“In April we grew just 0.3% and in May the GDP fell 1.4%. The recession would be confirmed on August 15 when data for June is published,” he predicted.

Economic recession and GDP: political management

The former head of the Sunat assured that, when a government faces a recession, has a growing deficit that exceeds the fiscal rule, inflation that falls slowly and is above the target range, and expectations in negative territory, “there is very little that can be done, even more so if his approval is only 12%”.

Arias Minaya also points out that tax collection falls steadily from October 2022 to June 2023. This “hard” data is consistent with the drop in GDP from the same date.

“The quantum of imports has fallen for 5 consecutive months from December 2022 to April 2023. This is another hard fact that allows us to assert that we are in an economic recession. I do not rule out 0% growth in 2023,” he said.

Economic recession: supply shocks

For his part, the economist from Phase Consultores, Juan Carlos Odarpointed out that the Peruvian economy cooled down severely between December 2022 and January 2023, “but it was already falling before the political crisis.”

“Now the decline has been accentuated by supply shocks, various sectors linked to demand were already in contraction,” he said on his Twitter account.

In this sense, Odar explained that the contribution of the activities linked to the demand in May was negative. The Peruvian economy fell 1.4% in the fifth month of the year, its lowest rate in 27 months.

“After its fall in May, we estimate that production has reached its minimum in 22 months and has returned – what an irony – to a level similar to that of July 2021. Due to this result, we will revise downward our current projection of 1.5 %,” he said.