Peru’s economy contracted more than all forecasts in July, boosting the chance that the central bank will extend the monetary easing it began this week.
(Bloomberg) — Peru’s economy contracted more than all forecasts in July, boosting the chance that the central bank will extend the monetary easing it began this week.
The economy shrank 1.3% from a year earlier, the national statistics agency said Friday. The median expectation of nine analysts surveyed by Bloomberg was for the economy to remain flat.
Manufacturing output fell 14%, while construction activity dropped 8.8%. Mining was a bright spot, registering an 11% expansion.
The result extends the recession the economy is in, and throws into doubt the finance ministry’s prediction that a recovery was imminent. On Thursday, the central bank cut interest rates for the first time since the Covid-19 pandemic, lowering its benchmark rate a quarter percentage point to 7.5%.
“With interest rates high, inflation decelerating and inflation expectations falling, that supports the central bank’s rate cut this week and our expectation for further reductions into next year,” wrote Felipe Hernandez, who covers Latin America for Bloomberg Economics, in a report. “Weaker-than-projected activity in July will likely increase bets on a bigger rate cut in October.”
Peru was the fastest growing major economy in Latin America for much of this century, but it is now losing its luster.
Read more: Peru Struggles to Revive Its Days as Latin America’s Top Economy
Mass unrest caused a contraction at the beginning of the year that was extended when bad weather from the El Nino phenomenon hit crops and fishing, tipping the economy into recession.
On Friday, the central bank lowered its 2023 economic growth forecast to 0.9% from 2.2%.
Read more: Peru Joins Regional Trend With First Key Rate Cut Since Pandemic
(Adds central bank forecast in final paragraph)
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