The data was widely expected by analysts, but that did not stop it from being shocking.
This Thursday, the Peruvian statistics institute reported that the variation in the Gross Domestic Product (GDP) in 2023 was -0.6%.
This represents the second worst economic contraction in 33 years, after that caused by the covid-19 pandemic.
The country, accustomed to growing above the average for the Latin American region, was hit by four strong blows in 2023. It was its
anus horribilis
and the authorities want to leave it behind.
Data from the National Institute of Statistics and Informatics (INEI) show that GDP fell 0.4% in the last quarter of last year compared to the same quarter of 2022, confirming the estimate for annual GDP.
“This result occurred in a context of adverse weather conditions that affected agricultural, fishing and processing sector production,” says the INEI statement.
But this is only part of the picture of what the South American economy experienced in 2023.
“There is no economy that can withstand what happened to us,” says Hugo Perea, chief economist for Peru at BBVA.
“There were four crashes of significant magnitude,” he said.
A drought in the southern Andean that impacted the agricultural sector, a social upheaval that paralyzed production and transportation routes during January of last year, a cyclone on the northern coast that left losses of almost 350 million dollars and, finally, the global El Niño phenomenon that warmed the Central Pacific and caused rains that affected fishing and agriculture.
Both the cyclone and El Niño left dozens dead and thousands injured.
To these four extraordinary events we must add the tight financial conditions that Peru is experiencing, like much of the world.
The Central Reserve Bank of Peru, like many others, has had to keep the reference interest rate high as a measure to contain inflation, which is currently at 3%.
“Relatively high inflation eroded people's purchasing power,” says Perea, “but I tell this because what I want to understand is that there has not been a fundamental change.
That is, this economic contraction is not structural.”
This message is similar to the one promoted by the Minister of Economy and Finance, Alex Contreras, from the Government.
In a conference at the end of last year, Contreras said at the microphone that despite the difficulties of 2023 “there have been important advances.
The fundamentals have not changed”, And then he added: “The political context has not helped, it has been something that has taken away.
But we continue to be an attractive place for investment.”
The social upheaval had its roots in an attempted coup d'état by former president Pedro Castillo, who is currently in prison.
The interim government of President Dina Boularte has said that the presidential elections will not take place until 2026. This uncertainty was reflected in private investment.
According to the INEI, at the end of 2023, gross fixed investment fell 5.7%.
mainly due to the decrease in private investment, which was 7.5%.
“In that environment, no one wants to invest,” Perea explained.
Although the fundamental axes of the economy are not problematic, they are not what they were before.
“It has been a long time since Peru stopped being that economy that grew at 6.5% and is now an economy that will grow, on average, around 2.5%.
Disappointing for a country that previously grew above the average for the region,” says Perea.
BBVA estimates that the Peruvian economy will grow 2% this year and 3.5% in 2025, the year in which it will finally recover what it has lost in recent years.
The reference interest rate will drop from 6.75% to 5% at the end of 2024.
Investors, who make up global markets, are motivated by narratives.
That is, the story that is told about a country at a certain time.
“The narrative of Peru right now is that of a country of challenges due to institutional weakness, but also of opportunities, of feasible goals,” says Perea and “there is still interest on the part of foreign investors to invest in the country and buy bonds from the country".
Its high production of copper, for example, is attractive for large capital at a time when they want to migrate to electrical energy to replace hydrocarbons.
Its demographic bonus, with an average age of 29 years, makes it an attractive labor market.
And, finally, its fiscal discipline, with strong guardrails against over-indebtedness, is also an attraction.
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