Peru’s domestic demand is stabilizing

Peru's GDP grew 2.9%oya in 3Q15, virtually unchanged from the 3.0% growth in 2Q. On a sequential basis, activity slowed to 2.7%q/q, saar in 3Q from 3.6% in 2Q, pointing to stabilization ahead. On a year-to-date basis the economy is running at 2.6%oya, and economic activity seen accelerating to 3.3%oya in 4Q15, which is consistent with the 2.7% full-year 2015 GDP growth forecast. Domestic demand growth throttled back to 2.5%oya in 3Q, from 2.7% in 2Q, due to a slowing in consumption and decline in investment. Stronger public spending, stabilization in private consumption, and increasing investment is expected to underpin a growth pickup toward 3.2% in 2016.

Looking at the GDP breakdown, private consumption, the main pillar of growth, increased by 3.4%oya in 3Q, about unchanged from its pace in 2Q, to contribute 2.1%-pts to oya real GDP growth in the quarter. Meanwhile, government spending moderated to 4.2%oya in 3Q from 9.1% in 2Q, contributing 0.5%-pt to GDP growth. On the other hand, investment continues to fall, but appears to have bottomed, contracting 4.5%oya in 3Q, after a 9.3% nose-dive in 2Q. The annual contraction reflects a 3.7%oya decline in private investment 3Q after an 8.8% fall in 2Q and a 7.8%, drop in public after a 11.6% slump in 2Q. The capex contraction subtracted 1.2%-pts from real GDP growth in 3Q. On the external front, net exports contributed 0.4%-pt in 3Q, driven by 0.1%oya drops in both exports and imports.

While the timing and pace of recovery in private investment remains uncertain, public investment is expected to pick up as the government compensates for the inefficient implementation of the fiscal stimulus programmed for this year.