GDP would have its lowest growth in 14 years this year

The projections of the Peruvian economic variation for this year have been in constant decline. It is now expected to range between 0.8% and 2.2%.

After questions about his optimistic reading, the head of the Ministry of Economy and Finance (MEF)Alex Contreras, told La República that the GDP would close “more or less 1.5%”. The new MEF figure will be made official in a few days, when the Multiannual Macroeconomic Framework.

Under these data, the national GDP is on track to complete 2023 with its lowest growth rate in 14 years, after the 1.1% seen in 2009, a period marked by the global financial crisis. It is worth specifying that the stage of the pandemic is not taken into account.

Minister Contreras acknowledges that there is a “structural slowdown” of the economy explained by the loss of business confidence, lower investment and project announcements, which are caused by “high-impact shocks” such as Cyclone Yaku, the social conflicts since Dina Boluarte assumed the presidency and the El Niño phenomenon.

“There are reasons to think that there will be a recovery,” he argued, but reviewing the figures of key indicators -usually cited by Contreras- we see that the production of the electricity subsector since March has shown lower growth and reached 3.19% in the last week July, while the internal consumption of cement –construction barometer– fell 10.58% to June, rounding off a semester in the red.

The president of the Central Reserve Bank of Peru (BCRP)For his part, Julio Velarde forecasts that GDP will be close to 2% in the third quarter and 4% in the fourth, although “they continue to be mediocre growth, but not as low as what we see now.”

An unseen problem

“The fall in May and June (in GDP) was not due to Yaku or the protests, because they were minor. It cannot be explained with what happened the previous year or the phenomena mentioned (by Contreras). There is a bigger problem and it is clearly internal demand”, said the former Minister of Economy Pedro Francke to LR+.

This reduction in internal demand, according to Francke, is due to the deterioration of the income received by workers and has an impact on the speed with which goods are traded: apartments, food and clothing are not sold because “there is no money in the popular pockets”; companies do not earn enough and therefore reduce their workforce.

“Lower productive growth translates into less job creation,” he added.

For the economist and former head of Sunat, Luis Arias Minaya, the recession that the first half of 2023 left us is similar to the contraction suffered in the world financial crisis of 2008 and 2009; and if the slowdown in consumption continues, the absence of investment projects and the restrictions on some activities due to climate change –such as anchovy fishing– it is very likely that we will grow closer to 0% than 1%, which would be worse than the crisis of 14 years ago.

Arias Minaya points out that there is no response from the Executive because they are only “chocolating the budget” for the Con Punche program while other sectors are left unprotected, nesting the lack of fiscal space in the collapse of the income of Peruvians and the erroneous tax policy decisions of the Executive, Congress and Constitutional Court that affect the recaudation.

Francke agrees on this last point, and remembers that there are S/12,000 million that large companies do not recognize and this weakens the fiscal fund. He also asks that the interest rate be loosened due to insufficient demand and prioritize boosting the home economy, especially agriculture in the face of adverse weather conditions.

The word

Approach. Pedro Francke, Former Minister of Economy

“The recession shows that there is a problem of insufficient demand. Tax collection was allowed to drop (…) Wages have fallen and there is a lack of wage policies and support for households”.

Approach. Luis Arias Minaya, former head of Sunat

“The MEF must be consistent and lower its estimate. We have a negative first semester, and if we grow 1% or 1.5% in the second, we are going to grow less than 1%, and it would be worse than the global crisis of 2009”.