MEF recognizes that the Peruvian economy is in recession

When in July of this year several economists and former ministers of State warned that Peru had entered a recession, after having recorded two consecutive negative quarters, the head of the Ministry of Economy and Finance (MEF), Alex Contreras, came forward and ruled out that this scenario has occurred.

“There is a group of economists obsessed with the fact that the economy is in recession”he said at the time.

After three months, the panorama changed and the head of the MEF recognizes that the Peruvian economy is in recession. This is because macroeconomic figures have not been as expectedsince in August a drop of 0.63% was observed and the September numbers would not show signs of recovery either, according to Minister Contreras.

“At no time have we underestimated the situation, it was basically a very academic discussion that we recognized at the time as unnecessary, but the situation is completely difficult and we are going to continue moving forward. It is without a doubt a recession, there is no doubt in my mind,” the official admitted.

For economist Luis Arias Minaya, the MEF should have accepted it before and thus prepare an adequate and effective action plan to get out of this complicated scenario.

“We have warned of recession since at least July. There were signs since the end of May. This began in October 2022 and has already lasted 11 months. Exit will be slow and weak,” commented the economist.

For his part, the director of Phase Consultores, Juan Carlos Odar, pointed out that it was difficult to continue insisting that the Peruvian economy was not in contraction, even more so when the official results did not accompany them either. Likewise, he explained that not only has investment fallen, but lower private consumption is reflecting a low purchasing capacity due to the negative effect of inflation, which is outside the target range.

Odar added that the economy’s recovery would be slow. In addition, he specified that for every percentage point that growth is stopped, around 50,000 would be stopped being created. Job positionswhich impacts income generation.

Desolate panorama

This recognition by the Executive comes just one day after the risk rating agency Moody’s warned that Peru is already in recession.

In addition, several consulting firms and banking entities have been lowering their economic projections to such an extent that they now predict that The Peruvian economy would have zero growth or negative at the end of 2023.

Phase Consultores expects a drop of 0.3% and even this figure has a downward bias. The Peruvian Institute of Economics has the same projection (IPE) due to the lack of clear signs of a recovery in the second half of 2023.

Meanwhile, the Economic Studies Area of ​​the BCP explains that the economic activity indicators indicate that the economy would have contracted in the third quarter of this year, which would imply that the growth of the GDP for the current it could be zero or slightly negative.

BBVA Research maintains that the available indicators point, on balance, to activity in September remaining weak. In this way, he maintains, a recovery is becoming less and less likely to be seen interesting part of the economy before the end of the year.

Labor productivity would also fall

Given the weakening of the national economy, labor productivity – measured by GDP and the number of employed workers – would register a contraction this year, according to an estimate by the Institute of Economics and Business Development (IEDEP) of the Lima Chamber of Commerce ( CCL).

“This not very encouraging scenario is also in line with the latest GDP report, whose result for the January and August period was -0.58%,” said Óscar Chávez, head of the IEDEP of the CCL.

Reactions

Alex Contreras, Minister of Economy and Finance

“The situation is completely difficult and we are going to continue moving forward. It is without a doubt a recession, I have no doubt and what we want is to get out of this recession with supplementary credit.”

Juan Carlos Odar, director of Phase Consultores

“The error of Government was to say that from July the growth rates are going to be higher. It was even said that the July rate would be the highest so far this year and it was the second most negative.”