Hugo Perea: “The economy has cooled more than we expected”

The Peruvian GDP will have a lower growth for this year —below 2%, according to local and foreign institutions. Perea takes a look at the conditions with which we entered the second half of a year hit by the political conflict, social discontent and climate emergency.

—Was this scenario of technical recession foreseeable, as indicated by some specialists?

I prefer not to use this term because it does not have much economic content. They cite it as referring to consecutive quarters of seasonally adjusted contraction, but it does not define a recession. There also has to be a deep and widespread contraction with complicated activity and employment indicators, and that is something we do not see.

“So what situation are we in?”

Beyond putting a label on it, what is clear is that the economy has cooled more than we expected.

-The reasons?

It is explained by the supply shocks that affected the economy: since the droughts and lack of fertilizers last year for agriculture, and for this reason we see a significant contraction in April and May. Also due to El Niño, which canceled the extraction of anchovy and ballast to the manufacture that converts it into fishmeal. We must add the very violent social protests seen in the first month of this year, which also generated a significant interruption in economic activity.

—The GDP estimates for this year are weak. Is it inevitable to get rid of the downward bias?

Less than a month ago we cut our forecast from 1.9% to 1.6%, and we maintain it with a downward bias. The risk factors that caused this bias have materialized. For example, there was a more pronounced drop than we expected in the agricultural sectoras well as in non-primary manufacturing.

—What does it mean to grow less?

He social welfare it is reduced because sufficient employment is not generated and the purchasing power of wages is not recovered. The perception of citizens is one of dissatisfaction and frustration. Growth is low, but I reiterate: it is not that measures have not been taken to contain it; There were supply shocks linked to weather anomalies that have a strong impact on the economy.

—And what to expect towards the second half of the year?

In general, towards the second semester we should see a better performance of the economy. It is not that there will be a significant rebound, but the most complicated impacts such as inflation will begin to moderate, as well as the support measures for (productive) activity that have been implemented since MEFand thirdly, towards the fourth quarter it is probable that the Central Reserve Bank will cut its interest rates, which would also help to improve economic activity.

—How do you assess the reaction of the MEF?

Steps were taken to contain the further slowdown, but whenever we’ve seen an El Niño of a relatively large magnitude, we’ve seen a sharp slowdown in (economic) activity. Ideally, the expectations of private agents should not be exacerbated or complicated, because that could generate an environment of greater slowdown.

—But the agents have a large part of their indicators in the negative tranche, the situation has not changed in half a year of the Dina Boluarte government…

Expectations continue to deteriorate. Entrepreneurs and families remain cautious in an environment of high uncertainty linked to El Niño in particular, but also the political and social situation (…) transcends the current administration. It is an environment of political deterioration that had implications for the quality of public policies and, in general, there were setbacks.