Economic Perspectives on Peru and the Region
Julio VelardePresident
Central Bank of Peru
December 6, 2018
4,4
6,6 6,77,3
7,7
5,66,0
1,5
3,22,6
5,4
3,93,3 3,2
3,8
5,3
3,7
-1,0
3,9
5,0
60s 70s 80s 90s 2001-18
Emerging Asia LatAm World Peru
* Emerging Asia for 60s and 70s only considers Emerging East Asia & Pacific.
Source: World Bank (for 60s and 70s), WEO (80s, 90s and 2001-18) and BCRP–Inflation Report (Peru).
2
Since the 90s, Peru’s growth rate was higher than the regional and world average.
Average GDP growth by decades
241
199
196
158
148
143
0
50
100
150
200
250
300
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8*
Latin America and the Caribbean: real GDP index(2000=100)
Peru
Colombia
Chile
Latam
Argentina
Mexico
*Forecast.
Source: WEO and BCRP–Inflation Report (Peru).
Since 2008, Peru GDP growth rate has been leading the region.
Country
Average
annual growth
2001-2018
Mexico 2,0
Argentina 2,2
Chile 3,8
Colombia 3,9
Peru 5,0
LatAm 2,6
3
In 2018 and 2019, Peru’s growth will be among the highest in the region.
*Forecast.
1/ Excludes Peru
Source: IMF (WEO, Oct. 2018) and BCRP–Inflation Report (Peru).
4
-0,6
1,3 1,2 2,2
2016
2017
20
18
*
20
19
*
LatAm
Average annual growth
2001-2018: 2.6%
4,0
2,5
4,0 4,0
2016
2017
2018*
2019*
Peru
Average annual growth
2001-2018: 5.0%
2,2
1,8
2,9 3,1
2016
2017
2018*
2019*
Pacific Alliance Countries 1
Average annual growth
2001-2018: 2,8%
Investment in Latin American countries is expected to maintain its average value.
* Forecast
Source: IMF (WEO, October 2018) and BCRP–Inflation Report (Peru).
5
0
5
10
15
20
25
30
35
Emergingmarket anddevelopingeconomies
Argentina Mexico Chile Peru Colombia Latin Americaand the
Caribbean
Brazil
Gross Fixed Capital Formation(% GDP)
Average 2000-2017 2018*
191,5
15,1
8,5 8,16,8 6,4
5,5 4,8 4,7 4,7 4,33,2 2,7 2,6
10 000 000
20,2
6,5
4,1 3,0 4,24,9 4,5
3,0 0,1 3,1 3,0 2,4 2,0
Venezuela Argentina Uruguay DominicanRepublic
Costa Rica Brazil LatAm Bolivia Colombia Ecuador Mexico Chile Panama Peru
Average inflation, 2000-2018 Estimated inflation, 2019
* End of period inflation.
Source: WEO and BCRP–Inflation Report (Peru).
Latin America: 2000-2018 average annual inflation* and
estimated 2019 inflation
6
Peru’s annual inflation is among the lowest in the region and will converge
towards the target center in 2019.
Source: Goldman Sachs and BCRP (Peru).
Monetary conditions: inflation gap, neutral interest rate and policy rate
Next year, Latam-5 central banks may begin with the withdrawal of the monetary
stimulus
-1
0
1
2
3
4
5
6
7
-1
0
1
2
3
4
5
6
7
Brazil Chile Colombia Mexico Peru
Inflation gap (actual minus target)
Neutral real rate range
Current real ex-ante policy rate
7
A group of Latin American countries has promoted government debt reduction
in the last 20 years. The other group should reduce its debt in order to achieve
fiscal consolidation.
* Forecast
Source: IMF (WEO, October 2018) and BCRP–Inflation Report (Peru).
8
0
20
40
60
80
100
120
140
160
180
Venezuela Brazil Uruguay LAC Argentina Mexico Costa Rica Bolivia Colombia Ecuador Panama DominicanRepublic
Peru Chile Paraguay
General Government Gross Debt(% GDP)
2018* 2000
The current account deficit is expected to remain at sustainable levels (and among
the lowest in the region), and will continue to be covered mostly by long-term
private sector external financing.
9
-0,5
-2,4-1,7
-2,8
-4,6 -4,4 -4,8
-2,7
-1,1 -1,6 -1,5
7,0
9,3
7,0
10,89,8
7,86,6
4,65,7
5,04,0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019*
CURRENT ACCOUNT AND LONG-TERM PRIVATE SECTOR EXTERNAL FINANCING1/ (% GDP)
Current account
Long-Term Private Sector External Financing % GDP
Current Account
Balance
2017 2018* 2019*
Argentina -4,9 -3,7 -3,2
Chile -1,5 -2,5 -2,7
Colombia -3,3 -2,4 -2,4
Brazil -0,5 -1,3 -1,6
Peru -1,1 -1,6 -1,5
Mexico -1,7 -1,3 -1,3
1/ Includes net foreign investment, portfolio investment, and private sector long-term disbursements.
* Forecast.
Source: BCRP – Inflation Report.
* Forecast
Source: IMF (WEO, October 2018) and BCRP (Peru).
Peru’s international reserves will be around 26 percent of GDP and will represent
4 times the short-term external debt.
65,7 62,3 61,5 61,7
63,6 61,1 61,9
2013 2014 2015 2016 2017 2018* 2019*
Net International Reserves (US$ billons)
10
INTERNATIONAL COVERAGE INDICATORS 2013 2014 2015 2016 2017 2018* 2019*
NIR as a % of:
a. GDP 32,5 30,8 32,1 31,7 29,7 26,9 26,2
b. Short-term external debt 1/ 572 550 460 316 453 397 445
c. Short-term external debt plus current account deficit 315 308 273 249 386 322 356
1/ Includes short-term debt balance plus redemption (1-year) of private and public sector.
* Forecast.
Source: BCRP – Inflation Report.
-14,7
-12,5
-6,6
-1,1
0,3
0,9
5,3
6,4
6,8
6,8
7,4
12,7
14,9
15,2
15,7
19,9
24,2
42,7
71,6
-20 0 20 40 60 80
Turkey
Venezuela
Argentina
South Africa
Chile
Malaysia
Indonesia
Colombia
Egypt
India
Mexico
Brazil
Philippines
Vietnam
China
Peru
Russia
Thailand
Saudi Arabia
External Vulnerability Indicator: 2018(% GDP)
Note: Indicator = [ Official Foreign Exchange Reserves - Short-term External Debt + Current Account Balance] / GDP.
Source: Moody’s and BCRP.
Higher external
soundness
Lower external
soundness
The high NIR, a sustainable current account and a low short-term external debt
guarantee external soundness…
11
-0,2
0,5
2,5
4,0
4,6
5,0
5,2
6,3
6,8
8,9
10,5
10,5
15,4
15,6
42,3
98,3
Ucraine
Thailand
Malaysia
Mexico
Peru
China
Philippines
Colombia
Indonesia
Chile
India
South Africa
Russia
Brazil
Turkey
Argentina
… and allows Peru to soften the impact of external financial shocks.
* Percentage change as of December 4 of 2018 with respect to December 31 of 2017.
Source: Bloomberg and Reuters.
FX depreciation 2018*
(currency unit per US$ - % change)
12
2,12,3
0,9
-0,3
-2,0
-2,5
-3,1-2,8 -2,6
2011 2012 2013 2014 2015 2016 2017 2018* 2019*
NON-FINANCIAL PUBLIC SECTOR SURPLUS/DEFICIT: 2011 - 2019(% GDP)
13
Fiscal deficit will decrease due to higher tax collection and lower tax refunds.
*Forecast.
Source: BCRP– Inflation Report.
14
Fiscal deficit path will lead to an increase in the gross debt, but up to sustainable
levels.
11,4 9,8 8,8 8,811,1 10,4
8,8 9,0 9,1
10,2
10,110,4 11,1
12,2 13,5 16,1 16,817,8
7,6
3,92,7 3,0
5,46,8
9,5
11,4
13,5
21,619,9 19,2
19,9
23,3 23,824,9
25,726,9
2011 2012 2013 2014 2015 2016 2017 2018* 2019*
NON FINANCIAL PUBLIC SECTOR DEBT: 2011 - 2019(% GDP)
Gross Debt in foreign currency
Gross Debt in local currency
Net Debt
Average maturity of debt (years) 12,1
Share of debt in foreign currency (%) 65
March 2018
*Forecast.
Source: BCRP – Inflation Report.
3
5
7
9
11
13
15
17
en
e.-
16
feb.-
16
ma
r.-1
6
ab
r.-1
6
ma
y.-
16
jun.-
16
jul.-1
6
ag
o.-
16
sep.-
16
oct.-1
6
no
v.-
16
dic
.-1
6
en
e.-
17
feb.-
17
ma
r.-1
7
ab
r.-1
7
ma
y.-
17
jun.-
17
jul.-1
7
ag
o.-
17
sep.-
17
oct.-1
7
no
v.-
17
dic
.-1
7
en
e.-
18
feb.-
18
ma
r.-1
8
ab
r.-1
8
ma
y.-
18
jun.-
18
jul.-1
8
ag
o.-
18
sep.-
18
oct.-1
8
10-Year Sovereign Yields in Local Currency
Peru
Mexico
Colombia
Chile
Brazil
Sovereign yields reflect a positive investor sentiment towards Peru´s financial
position. Peru’s solid macroeconomic indicators provide assurances of a sound
economic performance.
Sovereign Ratings
(local currency)
S&P Moody's Fitch
Chile AA- A1 A+
Peru A- A3 A-
Mexico A- A3 BBB+
Colombia BBB Baa2 BBB
Brazil BB- Ba2 BB-
15Source: Bloomberg and Ministry of Economic and Finance (MEF).
Chile Peru Colombia Mexico Brazil
31-12-17 4,55 5,17 6,48 7,65 10,26
4-12-18 4,41 5,64 6,96 9,12 9,97
Difference (bps) -14 47 48 147 -29
Economic activity has been recovering since the second quarter of 2017.
4,6
3,9
4,8
3,0
2,3
2,62,7
2,3
3,2
5,5
2,3
4,9
Q1
- 2
01
6
Q2
- 2
01
6
Q3
- 2
01
6
Q4
- 2
01
6
Q1
- 2
01
7
Q2
- 2
01
7
Q3
- 2
01
7
Q4
- 2
01
7
Q1
- 2
01
8
Q2
- 2
01
8
Q3
- 2
01
8
Q4
- 2
01
8*
*Forecast.
Source: BCRP – Inflation Report.
GDP growth(YoY% change)
16
31,4
6,1
0,3
-13,8-17,4
-5,7
5,5
1,6
5,58,4
-1,6
21,0
Q1
- 2
01
6
Q2
- 2
01
6
Q3
- 2
01
6
Q4
- 2
01
6
Q1
- 2
01
7
Q2
- 2
01
7
Q3
- 2
01
7
Q4 -
2017
Q1
- 2
01
8
Q2
- 2
01
8
Q3
- 2
01
8
Q4
- 2
01
8*
Public Investment(YoY% change)
Public investment has increased in line with progress of the works on the Pan
American Games and the El Niño Reconstruction program.
17
*Forecast.
Source: BCRP – Inflation Report.
After 14 consecutive months of decrease, private investment has recovered since
the second half of 2017.
Private Investment(YoY% change)
*Forecast
Source: BCRP – Inflation Report.
14 consecutive quarters of decline
18
12,210,6
4,9
-2,6
-10
-5
0
5
10
15
20
I.12 II III
IV
I.13 II III
IV
I.14 II III
IV
I.15 II III
IV
I.16 II III
IV
I.17 II III
IV
I.18 II III
IV*
Private sector confidence remains high.
6466
69 70 69 69 7069
6568
30
35
40
45
50
55
60
65
70
75
80
J.1
7 F M A M J J A S O N D
J.1
8 F M A M J J A S O N
Business expectations on the economic situation for the three and twelve
months ahead
Economy in the 3M ahead Economy in the 12M ahead
Optimistic area
Pessimistic area
Source: Apoyo, BCRP.
19
61
6264
65
59
61
63
61 62
40
45
50
55
60
65
70
J.1
7 F M A M J J A S O N D
J.1
8 F M A M J J A S O
Business expectations on the familiar economy situation for the twelve months
ahead(INDICCA, Lima Metropolitana)
Optimistic area
Pessimistic area
Expected investment 2019-2021: over US$ 28 billion.
SECTORS
(US$ millions)
2019-2021: MAIN INVESTMENT PROJECTS
(US$ millions)
Mining
(14 690)
• Quellaveco (3 450)
• Pampa del Pongo (1 800)
• Mina Justa (1 230)
• Zafranal (895)
• Michiquillay (700)
Infrastructure
(6 026)
• Lima Metro Line 2 (1 450)
• Expansion of Lima’s Jorge Chavez International Airport (1 000)
• Port terminals – Arequipa, Salaverry, Chancay, Paita, Ica y Loreto
(1 118)
• Highways (955)
Hydrocarbons
(2 213)
• Block 39 exploration (730)
• Block Z-2B exploration and drilling (400)
Electricity
(1 592)
• Santa Teresa II Hydroelectric expansion (450)
• Majes I and Majes II Hydroelectric (350).
Industrial
(806)
• Mitsubishi Phosphate Processing Plant (430)
Other sectors
(2 732)
• Intercorp Shopping Center (EX-San Martin quarter) Lima (650)
Private consumption has been driven by better labor market conditions.
2,4
2,93,0
1,4
2,1 2,1 2,2 2,1 2,1
2,82,6 2,6
3,8
2,7
3,7
5,7
4,34,1
4,3
4,7 4,7
J.1
7 F M A M J J A S O N D
J.1
8 F M A M J J A S
Private Formal Employment(YoY % change)
Source: SUNAT
4,43,94,24,0
3,4
4,2
3,44,0
4,5
3,23,3
2,4
4,44,4
8,69,18,9
7,3
6,5
10,7
7,6
J.1
7 F M A M J J A S O N D
J.1
8 F M A M J J A S
Jan-Set. 2018
Total 4,2
Agricultural exports 17,1
Agriculture and livestock 17,4
Mining 3,5
21
Total Income of Private Formal Employment(YoY % nominal change)
1,6 1,7
0,5 0,4
1,7 1,7 1,7 1,72,3
3,6
4,9 5,15,7
6,0
7,48,0 8,0
7,46,9
7,6 7,36,8
J.17 F M A M J J A S O N D J.18 F M A M J J A S O
Financial Sector indicators show clear signs of greater dynamism.
Source: BCRP
Credit to the Private Sector (YoY % change)
5,44,7
4,2 4,34,8 4,8 4,8 4,6
5,26,2
6,9 7,37,8
8,7
10,010,810,6
10,110,9
11,510,910,8
J.17 F M A M J J A S O N D J.18 F M A M J J A S O
Consumption(YoY % change)
1,8 1,71,1 1,3
1,8 2,0 1,9 1,7
2,8
5,6
7,67,1 7,3
7,78,3 8,5 8,4
7,9 8,2 8,4 8,1
6,8
J.17 F M A M J J A S O N D J.18 F M A M J J A S O
Mortgages(YoY % change)
22
Electricity and cement consumption has accelerated
Source: BCRP.
-6,5
-4,5-5,7
-8,8
-1,9
3,5
1,4
3,5 4,2
6,6
4,1
6,7 6,5
4,3 4,1
8,2 8,2
-0,3
2,2
0,31,6
5,0
J.1
7 F M A M J J A S O N D
J.1
8 F M A M J J A S O
Cement consumption(YoY % Chg.)
23
6,2
-2,0
0,8
-0,4
3,3 3,6
1,22,0 1,6
1,00,1
-0,6-0,4
1,8
3,6
6,2
3,0 3,43,9
2,63,2
5,16,2
J.1
7 F M A M J J A S O N D
J.1
8 F M A M J J A S O N
Electricity(YoY % Chg.)
Consequently, GDP is expected to grow 4% in the next two years, driven by
domestic demand, particularly investment and private consumption.
GDP(YoY % Chg.)
Average
2007-20162017 2018* 2019*
Domestic Demand 6,4 1,4 4,4 4,0
Private consumption 6,1 2,5 3,8 3,6
Public consumption 6,3 0,2 3,4 3,2
Private investment 7,9 0,2 5,5 6,5
Public investment 9,1 -2,3 9,9 2,8
Exports 4,0 7,8 3,5 4,6
Imports 7,2 4,1 5,0 4,7
GDP 5,5 2,5 4,0 4,0
Memo:
Primary GDP 3,6 3,1 2,6 4,2
Non-primary GDP 6,1 2,3 4,3 4,0
*Forecast.
Source: BCRP – Inflation Report.24
25
2,172.16
2,17
-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
Ja
n-1
5
Ma
r-1
5
Ma
y-1
5
Jul-15
Se
p-1
5
No
v-1
5
Ja
n-1
6
Ma
r-1
6
Ma
y-1
6
Ju
l-1
6
Se
p-1
6
No
v-1
6
Ja
n-1
7
Ma
r-1
7
May-1
7
Ju
l-1
7
Se
p-1
7
No
v-1
7
Ja
n-1
8
Ma
r-1
8
Ma
y-1
8
Ju
l-1
8
Se
p-1
8
No
v-1
8
Inflation
Food and energy
Excluding food and energy
Maximum
Minimum
Target
range
Source: BCRP.
Inflation(YoY% change)
Average 01-17 Nov.18
Inflation: 2.7% 2.2%
Excluding food and energy 2.1% 2.2%
Food and energy 3.2% 2.2%
Inflation has remained in the target range since June.
Reference
rate (%)
Dec. 2016 4.25
May. 2017 4.00
Jul. 2017 3.75
Sep.2017 3.50
Nov. 2017 3.25
Jan. 2018 3.00
Mar.2018 2.75
3,50
4,25
3,002,75
0,08
0,25
1,59
0,770,31
-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18 Jun-18 Nov-18
Since March, the Central Bank has maintained its interest rate at 2.75%.
26
Nominal and Real Reference Rate (%)
Nominal
Real*
*Ex-ante (with the inflation expectation one year ahead)
Source: BCRP.
-1
0
1
2
3
4
5
-1
0
1
2
3
4
5
2015 2016 2017 2018 2019*Proyección
Inflation is expected to converge towards the target center in 2019.
27
Inflation Forecast 2018 – 2019 Inflation Forecast
2017 2018 2019
CPI 1,4 2,2 2,0
1. CPI excluding food and energy 2,1 2,3 2,0
i. Goods 1,2 2,2 1,7
ii. Services 2,7 2,3 2,2
2. Food and energy 0,5 2,2 2,1
i. Food 0,3 2,1 2,1
ii. Energy 1,6 2,4 2,1
Source: BCRP – Inflation Report.
Economic Perspectives on Peru and the Region
Julio VelardePresident
Central Bank of Peru
December 6, 2018