GDP will fall 0.5% and poverty will reach 28.7% of Peruvians

The numbers speak: the Government of Dina Boluarte has not been able to straighten the economic course, since in 2023 the GDP will fall 0.5%, according to the Central Reserve Bank of Peru (BCRP).

Under the tip of the iceberg, there is a complicated outlook for the new year, because fiscal rules will be broken due to the lack of income, private investment remains in the red and business expectations remain in the pessimistic range. The redeemable thing is that inflation will approach the target range sooner rather than later by closing December at 3.1%—one step away from the target range of 1%-3%.

We look bad in the photo

There are seven productive sectors that will end the current negative. The most pronounced contraction is in fishing (-17.6%), manufacturing (-8.0%), construction (-8.0%) and agriculture (-4.3%). There will be positive variations in only three sectors (see table).

Three months ago, the issuing entity expected a growth of 0.9%, but the effects of the climatic anomalies are prolonged and now the lowest rate is expected in just over two decades – 1998, when the GDP closed at -0, 4%—without considering the pandemic (-11.12%).

Julio Velarde, president of the BCRP, assured that the protests against the regime, Congress and at the request of the constituent assembly seen at the beginning of the year impacted 0.8% of the GDP, while Cyclone Yaku and El Niño Costero hit almost 1. 5%.

With the contraction of 0.5% of GDP, for the second consecutive year, Peru would be below the average for Latin America (2.0%). Guided by ECLAC figures, we would barely be better than Argentina (-2.5%) and Haiti (-1.8%).

This lower dynamism will impact monetary poverty ratios. Velarde announced that they expect a rate of 28.7%, just over one percentage point than in 2022. That is, almost a third of Peruvians will not have enough income to meet their basic needs. The World Bank, for example, predicts that it will shoot up to 30%.

Insufficient rebound

Former Minister of Economy and Finance David Tuesta considers that the projections presented by Velarde put an end to the Government’s over-optimism, and even believes that for the 3.0% rebound predicted for 2024 there is a bias to “fall further”, since expectations businesses lie deteriorated “day by day.”

It is worth mentioning that since mid-2021—at the genesis of Pedro Castillo’s short-lived management—business pessimism dominates most of the macroeconomic indicators collected by the BCRP.

Juan Carlos Odar, director of Phase Consultores, points out that the Executive Branch has not been able to awaken the confidence of investors or consumers despite the change in leadership, and has insisted on public investment programs – such as Con Punch Perú – that are seen weighed down by the weak performance of subnational governments.

“It is not that the decline is severe, but we have stabilized at a low level. That’s the problem. There is no capacity to react. If we reach the fourth consecutive negative quarter, we would have something that has not happened since 1988. Outside of the pandemic, we have to look back well to find such weak and poor management of the economy,” Odar mentioned for La República.

Investment in red

Private investment, which covers 80% of total investment, has been negative for five consecutive quarters, and the BCRP expects a greater contraction: from -5.3% to -7.3%. In mining, the decline is more pronounced: -14.1%.

Velarde pointed out that “there is interest” from business to invest in mining, especially in brownfield projects—expansions of current operations—but that, given the high paperwork required for permits, those interested give up. The absence of large projects like Quellaveco makes projections difficult, he adds. Thus, by 2024 they expect total private investment to rise to 1.8%.

Politics sank the economy

Approach. Alonso Segura, former Minister of Economy and Finance

Aside from shocks to the Peruvian economy such as the protests or El Niño, it is also true that not only the Government but also Congress have perpetuated business and consumer pessimism. The Government has been unable to lift them. They have focused a lot on public spending and have realized late—and if at all—that their focus must be focused on raising business expectations in order to create more jobs. It’s not that it’s automatic, but

Their priorities were different and in the end they have not served much purpose.

The economy may begin to grow or fall less in December, but what is worrying is the institutional attack by the political class. In a country where there are groups that only look after their interests and patronage, far from generating reforms to move forward, they are causing a lot of uncertainty with their counter-reforms. An investor does not know what is coming ahead. The economy has long been contaminated by public policy; So now when we recover we will grow little and we will be vulnerable. A rate of 2% is not enough.

GDP growth is not everything, but if there is no growth, what are you going to redistribute? Poverty is going to increase and the middle class is not growing. There will be an increase in underemployment and a contraction of adequate employment that was not normalized after the pandemic, but that will worsen more than anything in rural sectors.

Reactions

Julio Velarde, president of the BCRP

“Social conflicts and climate anomalies affected the income and confidence of the private sector in 2023. We hope for a more normal climate, which will lead us to hiring again in the agricultural sector.”

Juan Carlos Odar, director of Phase Consultores

“It is not that the fall is severe, but it is prolonged. We have stabilized at a low level. There is no capacity to react (…). We have to look back to find such weak and bad management of the economy.”