Peru's economy fell 11% in 2020, the biggest setback in 30 years

Inhabitants of the Los Jazmines neighborhood of Lima, in Peru.JUAN PONCE VALENZUELA / EFE

Peru's economy fell 11.1% during 2020, the lowest rate in the last three decades, the National Institute of Statistics and Informatics (INEI) has reported.

The confinements forced to contain the spread of the coronavirus, in force from March to June of last year, brought down the gross domestic product (GDP), according to the Peruvian institution.

The government announced that it will pay a subsidy of 164 dollars to 4.2 million homes starting this week.

The amount is intended for households in extreme poverty and vulnerability in the regions classified in extreme alert by the number of infections.

The data published this Monday by the INEI may mean that the official estimate of 10% GDP growth projected for 2021 by the Ministry of Economy and Finance will be corrected downwards, says economist Óscar Dancourt, professor at the Pontifical Catholic University of Peru, "due to the second wave of covid-19 and a new quarantine -although more lax than the first-", factors not considered when the ministry drew up its forecasts.

Nine regions of Peru have been confined since the end of January, although more sectors of the economy have permission to operate, compared to the closure of 2020. That quarantine is in force because of the second wave of the pandemic.

The government of President Francisco Sagasti arranged that the confinement would last two weeks, but given the serious epidemiological indicators it has been extended until the end of February in 31 provinces and in the metropolitan area of ​​Lima.

According to the Peruvian Ministry of Health, more than 43,000 people have died from covid-19, but the National Death System reports more than 90,000.

In this second wave, which began in early January, approximately 195 people die from the virus each day.

"This year GDP and employment are going to be subject to a force that pulls them down: the quarantine has passed from 15 to 30 days and the health system has collapsed: neither a second wave nor quarantine was expected," added Dancourt .

Although Peru has general elections called for April 11 of this year, and these tend to be an anxiety factor for economic actors, Dancourt comments that "the uncertainty generated by covid-19 is so overwhelming" that the confusion generated by the elections will be less than on other occasions.

"It is difficult to project the macroeconomic figures of the country without knowing the indicators that the epidemic will leave behind," he said.

The specialist believes that the performance of the economy in the Andean country will depend on other factors such as the arrival of the vaccine and the moment when mass immunization begins.

The first batch of a million doses of Sinopharm arrived in the last week, in two shipments, and vaccination of health personnel began last Tuesday.

“If mass vaccination begins in July, by itself it will be a reactivating force in the economy because there will be producers of services with the possibility of interpersonal contact and travel in cities -for example in hotels and restaurants- and policies can be applied to that. fiscal and monetary, "said Dancourt.

For the economist, another factor that will define the performance of the economy is a kind of race between the vaccine and the second wave.

"The second wave is winning, that leads to lower GDP and employment projections," he notes.

According to Dancourt, the external scenario is favorable for Peru, because international metal prices are at a high level, and there are no major capital outflows.

"The international recession has affected us less than other times," he says.

In sum, quarantines, vaccinations and restrictions on economic activities in the second wave are very important factors, in parallel with economic, fiscal and monetary policies.