Slowdown a ‘Blip’ As Central Bank Cuts 2014 GDP Forecast

Peru’s central bank slashed its 2014 growth forecast today, the second time in three months, as its sagging economy looked unlikely to rebound until next year. 

The $200 billion economy would grow just 4.4 per cent this year, down from May’s prediction of 5.5 per cent, central bank president Julio Velarde said in its quarterly report.

It’s far from last year’s pace of 5.8 per cent, as falling exports and sagging private investment prompted lawmakers to pass an ‘urgent’ stimulus package last month.

Velarde said the economy was experiencing a “blip”, though that it would recover to 6 percent growth next year, as production recovers in the second half of 2014.

Economic package

Congress green-lighted economic measures on July 3, which relax environmental rules for oil and gas projects, streamline bureaucracy and reduce employee overheads.

“Supposedly, a second packet of measures would be announced next week,” by the Ministry of Economy and Finance Mr Velarde said, as the government continues to shore up private investment and win back business confidence.

Slumped copper prices, tighter lending conditions for small businesses, and delays in public infrastructure projects have damped growth, according to the central bank governor.

The economy  expanded the least in five years in June with 1.9 per cent growth.

Exports in January to May fell 12 percent on the year-earlier period, with the mining sector due to contract 1 per cent this year, on weak gold production.

Peru is the world’s second copper exporter and is a top producer of gold and zinc.

Peru’s current account was forecast to weaken for the second consecutive year from $945 million to $2,600 billion this year.

Key performers

Velarde is betting on the mining, agriculture and fishing industries to return Peru to similar growth rates which saw it become South America’s fastest-growing economy last decade, at rates of 6.3 per cent.

“The production of coffee, which is our number one agricultural export, fell more than 20 percent, in part owing to climatic problems and insect plague; rice production fell close to 12 percent and is set to recover in the coming months. In mining the Toromocho project is expected to normalise production at the end of the year.”

Several public concessions due to begin next year would further drive Peru’s growth.

Peru’s central bank lowered the overnight rate a quarter-percentage point to 3.75 per cent this month.

Inflation for 2014 would be 2.8 per cent the central bank said today, a slight upgrade from 2.6 per cent, but within the bounds of the target rate of 1 and 3 per cent.

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