34
Economic Perspectives in Peru Julio Velarde Governor Central Bank of Peru December 5, 2019
Economic Perspectives in Peru
Julio Velarde Governor
Central Bank of Peru
December 5, 2019
360,0
1,4
1981-2000 2001-2018
Over the last two decades, IT LatAm countries have shown lower inflation ratesand volatility that assure greater macroeconomic stability.
2
LatAm: Inflation volatility in IT countries
Note: Volatility is measured using the standard deviation.Source: IMF-WEO.
170,6
83,9
5,6 4,8
80s 90s 2001-2010 2011-2018
LatAm: Inflation rates in IT1/ countries (Annual average)
Note: Average inflation by regime is calculated using 2018’s GDP (PPP adjusted) sharein the region and end-of-period CPI.1/ IT countries include Brazil, Chile, Colombia, Costa Rica, Dominican Republic,Guatemala, Mexico, Paraguay, Peru, and Uruguay.Source: IMF-WEO
Among the main LaTam countries, IT allowed the consolidation of the pricestability gains achieved in the early 2000s.
9,2
21,2
10,0
20,422,6
24,7
6,6
3,25,3 4,3
2,7
8,0
Argentina Brasil Chile Colombia Paraguay Perú Uruguay
Average inflation rate before and after IT adoption(percentage)
Pre-IT Post-IT
n.a.
757,8
Pre-IT: since January 1992.Post-IT: until June 2018.
Calculated using average CPI.Source: Mercosur survey (2018).
9,2
21,2
10,0
20,422,6
24,7
6,6
3,25,3 4,3
2,7
8,0
Argentina Brasil Chile Colombia Paraguay Perú Uruguay
Average inflation rate before and after IT adoption(percentage)
Pre-IT Post-IT
n.a.
757,8
Brazil Peru
3
9,2
21,2
10,0
20,422,6
24,7
6,6
3,25,3 4,3
2,7
8,0
Argentina Brasil Chile Colombia Paraguay Perú Uruguay
Average inflation rate before and after IT adoption(percentage)
Pre-IT Post-IT
n.a.
757,8
8,5
6,4
4,7 4,7 4,74,3
3,12,6 2,6
2,1
Uruguay Brazil Colombia Bolivia Ecuador Mexico Chile Panama Peru Peru -Underlying
Note: Calculated with the end-of-period CPI. Source: IMF and BCRP (Peru). 4
Average annual inflation rate(2001-2018)
Peru has achieved the lowest and less volatile inflation in the region since 2001.
Standard deviation
4,6 2,5 1,8 3,2 5,1 1,2 2,1 2,3 1,7 0,9
7,6
3,8
3,3
3,0
3,0
2,5
2,8
1,9
0,6
Venezuela
Argentina
Uruguay
Colombia
Brazil
Mexico
Paraguay
Bolivia
Chile
Peru
Ecuador
54,5
Peru’s inflation will remain among the lowest in the region.
2019
Inflation: Latin America(Annual % change)
2020
7,1
3,7
3,4
3,3
3,3
3,4
2,8
2,0
0,8
Venezuela
Argentina
Uruguay
Brazil
Colombia
Paraguay
Mexico
Bolivia
Chile
Peru
Ecuador
11 385
41,0
5
Source: Consensus Forecasts (November 2019) and BCRP (Peru).
41 550
260,6194,9
151,0143,8
126,3119,7
104,5101,8
93,967,1
63,853,2
50,450,2
46,242,1
31,029,6
20,8
TurkeyChile
RomaniaArgentinaMalaysiaHungary
South AfricaPoland
ColombiaBulgaria
IndiaIndonesia
BrazilMexicoChina
ThailandPhilippines
RussiaPeru
*Forecast.Note: Indicator = [ Short-term external debt + maturities of long-term external debt + more than 1 year non-resident deposits ] / NIR x 100.Source: Moody’s and BCRP (Peru).
Higher external vulnerability
Higher external financial strength
Peru also highlights because of its external financial strength to face potential capital outflows.
6
External financial vulnerability indicator: 2019*(% NIR)
9,4 10,312,2 12,8 12,8 13,5 13,8 14,8 15,0
18,2 18,5 19,2 20,3 20,9
25,9 26,3
29,7
35,1
39,1
Tur
key
Indo
nesi
a
Sou
th A
fric
a
Indi
a
Chi
le
Arg
entin
a
Mex
ico
Rom
ania
Col
ombi
a
Pol
and
Hun
gary
Bra
zil
Phi
lippi
nes
Chi
na
Rus
sia
Mal
aysi
a
Per
u
Tha
iland
Bul
garia
*Forecast.Source: Moody’s and BCRP (Peru).
International Reserves – GDP ratio also shows Peru’s external financial strength.
7
Net International Reserves as a % of GDP: 2019*
14,1
67,5
0
10
20
30
40
50
60
70
80
2005 2007 2009 2011 2013 2015 2017 2019*
Net International Reserves(US$ Billions)
*As of November 27th, 2019.Source: BCRP.
NIR 2018 2019* 2020*
As a % of:
a) GDP 26,7 29,7 29,2
b) Short-term external debt1/ 395 552 559
c) Short-term external debt plus current account deficit 320 409 401
1/ Includes short-term debt balance plus redemptions (1-year) of private and public sectors.
International Reserves represent more than five times our short-term externalobligations.
*Forecast.Source: BCRP.
8
Fiscal procyclicality during boom periods has decreased in Latin America,although not enough to ensure adequate savings for downturns.
9
Source: “Leaning against the wind: fiscal policy in Latin America and the Caribbean in a historical perspective.” World Bank (2017).
The level of Peruvian public debt consolidates fiscal solvency.
10
Source: MEF and IMF.
General Government Gross Debt (% GDP)
2000 2008 2013 2018
Argentina 42 54 43 86
Brazil 66 62 60 88
Chile 13 5 13 25
Colombia 38 32 37 50
Mexico 40 42 46 54
Peru 44 28 20 26
Uruguay 54 60 60 70
Latin America 47 46 49 68
2000 2008 2013 2018
Argentina 42 54 43 86
Brazil 66 62 60 88
Chile 13 5 13 25
Colombia 38 32 37 50
Mexico 40 42 46 54
Peru 44 28 20 26
Uruguay 54 60 60 70
Latin America 47 46 49 68
The fiscal deficit will be 1,7 percent of GDP in 2019 and 2020 due to the higherrevenues observed so far this year and in line with the anticipated recovery ofeconomic activity and public investment.
2,12,3
0,9
-0,2
-1,9-2,3
-3,0
-2,3
-1,7 -1,7
2011 2012 2013 2014 2015 2016 2017 2018 2019* 2020*
ECONOMIC BALANCE OF THE NON-FINANCIAL PUBLIC SECTOR: 2011 - 2020(% of GDP)
11
*Forecast.Source: BCRP.
It is projected that gross debt will increase by 1.3 percentage points of GDP to 27.1 percent in 2020 compared to the debt level in 2018. Its ratio is still one of the lowest in the region.
NON FINANCIAL PUBLIC SECTOR DEBT(% GDP)
*Forecast.Source: BCRP.
47,4
21,6 19,9 19,2 19,923,3 23,9 24,9 25,7 26,5 27,1
-8,7
-14,0-15,9 -16,4 -16,9 -17,9 -17,0 -15,4 -14,4 -13,5 -12,7
38,7
7,64,0 2,8 3,0 5,4 6,9
9,511,3 13,0 14,4
2001 2011 2012 2013 2014 2015 2016 2017 2018 2019* 2020*
Public Debt(% of GDP)
Assets (Invested) Gross debt Net debt
12
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Jan-
16F
eb-1
6M
ar-1
6A
pr-1
6M
ay-1
6Ju
n-16
Jul-1
6A
ug-1
6S
ep-1
6O
ct-1
6N
ov-1
6D
ec-1
6Ja
n-17
Feb
-17
Mar
-17
Apr
-17
May
-17
Jun-
17Ju
l-17
Aug
-17
Sep
-17
Oct
-17
Nov
-17
Dec
-17
Jan-
18F
eb-1
8M
ar-1
8A
pr-1
8M
ay-1
8Ju
n-18
Jul-1
8A
ug-1
8S
ep-1
8O
ct-1
8N
ov-1
8D
ec-1
8Ja
n-19
Feb
-19
Mar
-19
Apr
-19
May
-19
Jun-
19Ju
l-19
Aug
-19
Sep
-19
Oct
-19
Nov
-19
BrazilColombia
Peru
Mexico
Chile
The higher demand of sovereign bonds and the positive perception about thefinancial position of Peru’s economy explain the lower yields.
13
10-YEAR SOVEREIGN BONDS YIEDLS(%)
Dec. 18 Nov. 19*Chile 4,6 3,3Peru 5,7 4,3Colombia 7,0 6,5Mexico 8,9 7,1Brazil 9,3 6,9
* As of December 3.
Source: MEF.
As of October, non-resident investors hold 49 percent of the sovereign bonds.
14
Balance of Sovereign Bonds and share of Non-resident Investors(Amounts in million S/ and shares in %)
49
30
35
40
45
50
30 000
40 000
50 000
60 000
70 000
80 000
90 000
100 000
110 000
120 000
130 000
Jan-
16F
eb-1
6M
ar-1
6A
pr-1
6M
ay-1
6Ju
n-16
Jul-1
6A
ug-1
6S
ep-1
6O
ct-1
6N
ov-1
6D
ec-1
6Ja
n-17
Feb
-17
Mar
-17
Apr
-17
May
-17
Jun-
17Ju
l-17
Aug
-17
Sep
-17
Oct
-17
Nov
-17
Dec
-17
Jan-
18F
eb-1
8M
ar-1
8A
pr-1
8M
ay-1
8Ju
n-18
Jul-1
8A
ug-1
8S
ep-1
8O
ct-1
8N
ov-1
8D
ec-1
8Ja
n-19
Feb
-19
Mar
-19
Apr
-19
May
-19
Jun-
19Ju
l-19
Aug
-19
Sep
-19
Oct
-19
Sovereign bonds (left axis) % Non-residents (right axis)
Source: MEF.
Non-resident holdings of sovereign debt in Peru are low.
15Source: Institute of International Finance (IFF), MEF and BCRP.
99
75
6460 59
51 51 49 48 47
34 34 33 32 32 3125 25 23
18 18 18 17 15 14 13 12 11 9 9 9 7 7 5 5 5
Cyp
rus
Por
tuga
lB
elgi
umA
ustr
iaF
ranc
eS
pain
Slo
veni
aF
inla
ndIta
lyIr
elan
dLi
thua
nia
US
AS
lova
kia
Uni
ted
Kin
gdom
Ger
man
yLa
tvia
Net
herla
nds
Japa
nC
anad
aA
ustr
alia
New
Zea
land
Nor
way
Cze
ch R
epM
exic
oS
wed
enD
enm
ark
Col
ombi
aLu
xem
bour
gB
razi
lIc
elan
dIs
rael
Per
uE
ston
iaM
alta
Kor
eaS
witz
erla
nd
Non-Resident Holdings of Sovereign Debt(% of GDP)
IT has contributed to increasing central banks’ ability to implement counter-cyclical monetary policy under high international financial volatility.
Source: “Between a rock and a hard place: the monetary policy dilemma in Latin America and the Caribbean.” World Bank (2017).
16
5,00
4,25
7,50
2,251,75
0
2
4
6
8
10
12
14
16
18
20
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Brazil ChileColombia MexicoPeru United States
Good macroeconomic fundamentals and a high level of international reserveshave contributed to achieve effective countercyclical policies in Peru during theinternational financial crisis. This year, the Central Bank of Peru has reduced itsmonetary policy rate twice.
17
Monetary Policy rates(%)
2008 Q3 2008 Q4 2009 Q1 2009 Q3 2019*
Brazil 13,75 13,75 11,25 8,75 5,00
Chile 8,25 8,25 2,25 0,50 1,75
Colombia 10,00 9,50 7,00 4,00 4,25
Mexico 8,25 8,25 6,75 4,50 7,50
Peru 6,50 6,50 6,00 1,25 2,25
FED 2,00 0,25 0,25 0,25 1,75
Monetary Policy rates (%)
*As of November.
Source: Central Banks.
Credit to the private sector has expanded 7.5 percent in September, mainlybecause of the evolution of individuals credit. It is expected an expansion of 7,3and 8,5 percent in 2019 and 2020, respectively.
19,3
15,3
12,4
9,6
8,0
5,66,7
8,77,3
8,5
2011 2012 2013 2014 2015 2016 2017 2018 2019* 2020*
Credit to the private sector(Nominal YoY % Chg)
* Forecast.**September.Source: BCRP.
2017 2018 2019**
Consumer 8,8 13,1 13,4
Mortgage 8,5 9,0 9,1
TOTAL 8,6 11,4 11,6
2017 2018 2019**
Corporate and large companies
6,2 9,1 6,4
Medium-sized enterprises
0,6 3,8 0,1
Micro and small—sized enterprises
9,5 5,9 6,6
TOTAL 5,5 7,1 5,0
Business credit
Individuals credit
% chg.Total
% chg. Soles
2017 6,7 5,3
2018 8,7 11,6
2019** 7,5 10,4
2019* 7,3 10,5
2020* 8,5 11,0
18
The downward trend in the degree of financial dollarization is expected tocontinue, thereby reducing the risk of currency mismatches.
19
78,0
50,2 49,945,3
41,2
30,2 29,2 30,1 28,2 26,1 24,4
2001 2011 2012 2013 2014 2015 2016 2017 2018 2019* 2020*
Dollarization
Sep. 2019
%
Individuals 9,5
Consumer 6,3
Mortgage 14,4
Businesses 38,6
Micro and small-sized
enterprises5,8
Medium-sized
enterprises39,8
Corporate and large
companies51,8
Total 27,1
Dollarization ratio of credit to the private sector(Percentage)
*Forecast.Source: BCRP.
Financial deepening has increased in a context of reduction of dollarization.
20
0
5
10
15
20
25
30
35
40
45
0
10
20
30
40
50
60
70
80
90
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Credit/GDP(Right axis)
Credit dollarization(Left axis)
Source: BCRP.
Financial deepening has been accompanied by a healthy banking system.
27
45
15
3
18
27
51
15
3
19
% Liquidity (S/) % Liquidity ($) % Equity solvency % Non-performingloan portfolio
% ROE
Banking System Indicators
2018-Dec. 2019-Aug.
21
Source: SBS.
22
LATAM: Exchange rates (31 Dec. 2008 = 100)
Effectiveness of exchange rate intervention: PEN follows the same trend asother currencies in the region but with less volatility.
UM per US$ C.V.* (%)
Peru (PEN) 8,39
Chile (CLP) 14,15
Colombia (COP) 23,90
Mexico (MXN) 20,50
* Coefficient of variation based on daily data (2005-2019).
Brazil
Mexico
ColombiaChilePeru
Source: BCRP.
223
158
195
241
95
115
135
155
175
195
215
235
255
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Emerging economies*
*Excludes China.Source: IMF and BCRP (Peru).
Real GDP (Index 2000 = 100)
Peru
LatAm
World
Peru grew 5.0% on average in the last two decades, the highest rate among LatAmcountries and above the average of the emerging economies.
23
2,0
2,3
2,6
3,8
3,8
3,9
4,6
5,0
MexicoBrazil
Latin AmericaWorldChile
ColombiaEmerging economies*
Peru
Average annual growth(2001-2018)
Source: BCRP.
0
50
100
150
200
250
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018
Peru: Real GDP, 1950-2018Index 1987 = 100
Average annual growth rate
1951-1960 5,5
1961-1970 5,3
1971-1980 3,7
1981-1990 -1,0
1991-2000 3,9
2001-2018 5,0
1987-1992
GDP -23%
GDP per capita -31%
19 years of continuous expansion (1959-1977)
20 years of continuous expansion (1999-2018)
24
Peru reaches 20 years of continuous expansion, the longest since 1921.
*South America and Mexico.Source: IMF and BCRP (Peru).
25
0
2
9
9
9
19
20
Argentina
Brazil
Chile
Mexico
Latin America*
Colombia
Peru
LatAm*: years of more recent continuous growth
In the region only Peru and Colombia have shown similar periods of prolongedexpansion.
26
The improved macroeconomic environment (sustained growth and stable prices)has contributed to the reduction of poverty levels. The poverty level fell by morethan half in seven years.
Source: INEI and BCRP.
58,755,6
49,1
42,4
37,333,5
30,827,8
25,823,9 22,7 21,8 20,7 21,7 20,5
10
20
30
40
50
60
70
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Peru: poverty rate, 2004-2018(As percentage of total population)
% change in GDP (annual average 2004-2012) = 6,5%Poverty Reduction: 33 p.p.
% change in GDP (annual average 2013-2018) = 3,7%Poverty Reduction: 5 p.p.
3
9
11
13
18
20
20
23
26
27
30
32
32
37
Mexico
El Salvador
Honduras
Dominican Rep.
Panama
Brazil
Uruguay
Colombia
Paraguay
Argentina
Ecuador
Bolivia
Chile
Peru
Latin America: reduction in the poverty rate, 2002-2017(Percentage points)
27
According to ECLAC, Peru was the country that reduced its poverty rate themost between 2002 and 2017 in the region: this correspond with one of thehighest growth rates in the region.
Source: ECLAC and INEI (Peru).
This year GDP growth decelerated due to temporary local factors. In 2020 it isprojected that recovery will be driven by the normalization of primary activityand higher domestic demand growth, particularly investment.
28
GDP growth(Real % change)
6,56,0 5,8
2,4
3,3
4,0
2,5
4,0
2,7
3,8
2011 2012 2013 2014 2015 2016 2017 2018 2019* 2020*
*Forecast.Source: BCRP.
2,5
3,8
2,2
4,5
2,8
-1,7
1,9
4,13,3
2017 2018 2019
GDP growth: Jan-Sep(Real % change)
Total GDP Primary GDP Non-Primary GDP
The slowdown observed during Jan-Sep. 2019 was caused by local supplyshocks (to primary sectors), lower public investment and external factors (tradetensions).
29
Source: BCRP.
In 2019 investment has been driven by mining. In the next year infrastructureprojects will support GDP growth.
Source: Firms and MEF (Infrastructure National Plan for Competitiveness).
30
Investment Announcements
Portfolio
US$ 37 billons
Infrastructure Investment
2020-2029
US$ 29 billonsin 52 projects
Investments
GDP
-2,9
0,1
0,2
0,5
0,9
0,3
2,0
2,5
3,1
3,7
Venezuela
Argentina
Ecuador
Mexico
Uruguay
Brazil
Paraguay
Chile
Peru
Colombia
Bolivia
-27,3 -8,8
-1,8
0,4
1,1
1,3
2,0
2,3
3,2
3,2
3,4
3,8
Venezuela
Argentina
Ecuador
Mexico
Uruguay
Brazil
Chile
Colombia
Paraguay
Bolivia
Peru
This forecast for the 2019-2020 GDP growth implies that Peru will remain among the fastest-growing countries in the region.
2019
GDP growth in Latin America(Annual percent change)
2020
Source: Consensus Forecasts (November 2019) and BCRP (Peru).
31
Source: BCRP.
Reforms are required to raise the potential GDP growth
32
5,9 6,0
3,5
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Potential GDP Growth(%)
Ranking based on 141 countries.Source: World Economic Forum (2019).
Challenges in the long run
33
Worst-performing components in the competitiveness ranking
Peru
1. Hiring and firing practices 134
2. Efficiency of legal framework in settling disputes
134
3. Burden of government regulation 128
4. Ease of finding skilled employees 114
5. Quality of road structure 110
Economic Perspectives in Peru
Julio Velarde Governor
Central Bank of Peru
December 5, 2019
