Peruvian economy stagnates and enters technical recession

The slowdown of gross domestic product (GDP) in recent months has led the national economy to return again to a technical recession, something that had not been seen since the pandemic, when there was a sharp contraction in economic activity as a result of the restrictive measures that paralyzed various sectors to prevent the spread of COVID-19.

The recession in the Peruvian economy has occurred after having added two consecutive quarters —in seasonally adjusted terms— of a drop in GDP: in the fourth quarter of 2022, economic activity contracted by 0.1%, while in the first three months of 2023 fell by 1.4%, explained Juan Carlos Odar, director of Phase Consultores.

However, the economist points out that, although the national economy is in recession, the Peru I would get out of this stage quickly, albeit with very low growth rates.

“Despite the sharp drop in May and the fact that a recovery is not expected in June, we would be talking about an economy that, in comparative terms with the previous quarter, would be marginally up, with which we would be talking, technically, that the recession it would have ended. But this is showing us a very cold economy,” Odar explained to La República.

For his part, the former Minister of Economy Carlos Oliva indicates that as the dynamism of the economy is going, it is expected that at the end of the first semester the GDP is located at 0% or even registers a drop. In addition, it foresees that at the end of 2023 it would grow just 1%.

It is important to mention that from January to May the Peruvian economy accumulated a contraction of 0.49%. Faced with this situation, the head of the Ministry of Economy and Finance (MEF), Alex Contreras, came out to put cold cloths and explained that national economic activity has been affected by primary shocks and a deterioration of the sectors associated with investment.

He added that the drop in GDP in the first two months was due to social mobilizations, while in March and April a slight advance could be observed. However, the impact of the El Niño phenomenon was decisive for May to close at -1.4%. Despite this, Contreras Miranda is confident that the economy will have a “significant recovery in the third and fourth quarters.”

stagnant economy

Juan Carlos Odar stated that the Peruvian economy will remain cold in the following months, and what would alleviate these poor results is the drop in inflation.

In the opinion of Carlos Oliva, an economy in recession is depicted as a country that is not creating enough adequate jobs and also complicates the fight to reduce the monetary poverty.

Both experts consulted agree that the message of July 28 is a key opportunity for important reactivation announcements to be made. Oliva Neyra maintains that the National Competitiveness Plan and give concrete measures. While Odar expects President Dina Boluarte to announce a large infrastructure or mining project, which would strengthen business confidence and thus improve private investment, which is expected to contract 2.5%, according to the BCRP.

Peruvian economy stagnates

Monthly Evolution of National Production: 2021-2023

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Carlos Oliva, former Minister of Economy

“It is very likely that the first semester we will be at 0% or even negative, which is bad news for everyone. That means the economy could barely grow a little more than 1%.”

Alex Contreras, Minister of Economy

“What we expect going forward is for the economy to recover, for there to be a kind of ‘W’, a first drop in conflict, recovery, a new drop and forward recovery.”