Only three days after posting the slowest pace of economic growth in nearly five years, the Peruvian government on Thursday sent its parliament a package of economic measures to reactivate the economy, boost investment and strengthen confidence in the Andean country. The economy heads for a fourth straight year of slower growth as a 6.8% drop over the past year in the price of copper, the nation’s biggest export, and a lower demand for its mineral exports has hampered mining investment. Mining alone accounts for about 15% of gross domestic product.
The broad-based reforms package, should it be enacted, is positive for creditworthiness in the country and will increase the potential for expansion in the medium to long term and provide an immediate boost for business confidence, according to Moody’s Investors Service. Peru is craving such positive news. The legislation will be a priority in Congress in the upcoming weeks, and its approval is expected soon. Among other plans, the reforms aim to streamline bureaucracy, reduce labor overheads, encourage investments in mining, energy and other core sectors, plus change the tax system and relax environmental rules for oil and gas projects.
Peru’s economy grew at the slowest pace in nearly five years in April, expanding 2% from the same month in 2013 because of a drop in the pivotal mining and construction sectors. The last time the fast-growing country posted such weak monthly expansion was in October of 2009, during the global financial crisis, something that has made the government uneasy. The Peruvian government signals weaker-than-expected mineral output from some of the country’s biggest mines as the major reason for the slowdown (Peru is a top global exporter of copper, silver, gold and zinc). The economy expanded 5.28% in the 12 months through April and 4% in the first four months of the year, compared with the prior-year periods, the state statistics agency Inei said on Monday.
However the prospects for the country, regardless of whether the reforms pass or not, are brighter than in recent months. Peru’s GDP is set to be of 5% in 2014, as a steady pick up on strong economic indicators is expected during the second half of the year, recently said to Banco de Credito del Peru, the largest in the country. BCP has their own explanation about the April decline by saying that it was due to the statistical effect by fewer working days in the said month and the slowdown in China. On their behalf, Moody’s expects Peru’s economy to grow 5.2% this year, compared with 5.8% in 2013. The central bank is more upbeat than many of those who publish economic outlooks and put Peru’s potential growth rate at 6% and is forecast a 5.5% expansion this year.
The challenge for the government is if it will be capable to strengthen the country’s economic performance. Peru was able to weather the global crisis quite well, now is the moment to solidify its position in the region and the global markets.