Peru Economic Forecast

The economy weakened in Q4 on softer external demand and cooling consumer spending amid higher inflation and nationwide protests. Activity seemingly remained subdued in Q1. Economic activity shrank year on year in January and February. Additionally, in a testament to a less-supportive global economic backdrop, merchandise exports plunged in year-on-year terms in January-February. Likewise, merchandise imports shrank in the same two-month period, signaling subdued domestic demand. On top of this, inflation averaged higher during the quarter relative to Q4, while financing conditions tightened. Moving to the current quarter, inflation dipped but remained high in April, which will be weighing on consumer spending. In politics, in a surprise move, President Boluarte swore in four new ministers in late April, signaling continued political volatility.

Inflation came in at 8.0% in April, down from March’s 8.4%. It thus remained significantly above the Central Bank’s target range of 1.0–3.0%. Inflation should continue to gradually ease ahead due to the lagged effects of monetary policy tightening and easing supply chain pressures. A looser fiscal policy stance and potential FX weakness pose upside risks.