Crédito y Caución expects Peru to maintain annual growth rates of around 4% in 2019 and 2020, driven by rising commodity prices and strong domestic demand.
Domestic consumption is growing, thanks to rising household incomes and high consumer confidence in this small, open economy, which has established trade agreements with the United States, the European Union, and China. Private investment is developing new mines in the country, which largely depends on minerals such as copper and gold, and hydrocarbons such as oil and natural gas, which account for more than 60% of exports.
Peru has a solid track record in formulating prudent and business-friendly policies. To maintain high growth rates, the government must deepen structural reforms, such as reducing bureaucracy, strengthening the judicial system, making the labor market more flexible, and improving infrastructure and education. Despite the economic progress achieved in recent years, Peru still faces high levels of poverty and significant income inequality, especially between the coastal regions and the interior of the country.
The report released by Crédito y Caución predicts that, over the next two years, inflation will remain within the central bank's target range of 1% to 3%. The country has strong liquidity and a moderate current account deficit, which reinforces its capacity for recovery in the face of a possible external economic crisis. The main risks to the country's economic outlook are a possible sharp slowdown in the Chinese economy and growing social unrest in the mining sector, which would negatively affect investment. Furthermore, the financial sector is highly dollarized, increasing its exposure to exchange rate risks.
