Adverse economic conditions have led to downward revisions to 2023 growth

Although social and political unrest and unfavorable climate conditions have weighed on growth, Peru’s resilient labor market, increasing mining output, and low debt-to-GDP ratio should provide strong support for a dynamic recovery beginning in late 2023 and throughout 2024. Easing inflation will allow the central bank to lower borrowing costs, providing relief to the economy by the year’s end. The announced recovery program, Con Punche Peru 2.0, will provide a strong base for Peru’s economic reactivation, confirming political consensus will prove vital to jumpstart the economy. However, poor public budget execution has halted past administrations’ efforts, so MNCs should closely follow any developments pertaining to social unrest, which could play an outsized role in the country’s economic performance.


The abrupt end to former President Pedro Castillo’s time in office in late 2022 led to months of social unrest and protest activity, limiting economic activity in Q1. In this context, hydrocarbon production dropped by (-11.5% YOY) in February, alongside drops in non-primary manufacturing (-8.4% YOY), exports (-1.5% YOY), and construction (-10% YOY). Although protests came to a halt in Q2, the outsized impact of El Niño brought down the initial recovery experienced in March and April. Agriculture production fell (-6.0% YOY), with fishing (-70% YOY), manufacturing (-15% YOY), and construction (-11% YOY) experiencing steep drops as well. On a positive note, both unemployment and inflation continued downward trends, providing support to an improving consumer outlook toward 2024.

Our View

The underperformance of the Peruvian economy in the first half of the year can be mainly attributed to factors that shouldn’t impact growth in the second half of the year or beyond. Resilient domestic demand in a context of falling inflation should help the economy recover promptly, with high commodity prices driving growth in the extractive industries. However, public investment has been underwhelming, as political instability has hindered the government’s ability to execute the public budget. Looking ahead, President Boluarte will need to achieve consensus so Congress approves spending programs aimed at jump-starting the economy. A better economic outlook should strengthen Boluarte’s place in office; Peru’s low debt-to-GDP ratio will provide maneuvering space to the administration if it manages to improve a low public budget execution. The aforementioned growth path hinges on Boluarte’s ability to hold onto power without fueling further unrest and, of course, on better climate conditions. Late 2023 and 2024 projections for Peru show a resilient economy getting back on its growth trajectory. Overall growth will be influenced by external factors, such as copper demand and the pace of the Chinese recovery, but domestic factors such as political stability will have an outsized role in determining the scale of the Peruvian recovery.

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