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Peru - Economic Briefing August 2002

Economy Back in Deflation as Growth Remains Concentrated in Mining

The economy continues to grow at a healthy pace. However, the expansion remains concentrated in the mining sector, which is propelled by the Antamina copper-zinc mine in southern Peru. However, the rest of economy is only partially profiting from the buoyant mining sector as the Toledo administration fails to provide an impetus to growth. Meanwhile, sluggish domestic demand has sent the economy once again into deflationary territory

June economic activity ahead of expectations

In June, the economy grew by 3.6% compared to the same month last year, well ahead of expectations. The June reading follows on an even stronger 4.5% growth rate reported for May (revised upward from 4.3% stated last month). The June data were also inflated by seasonal factors. According to seasonally adjusted data, the economy actually contracted by 2.1% in June over May.

Mining leads growth but comparison base effect soon to pass

As in the past, the country’s mining sector drove economic growth. Mining continues to benefit from a favourable comparison base in the same month last year when the Antamina copper-zinc mine in southern Peru was not yet operating. Since the Antamina mine has developed into one of the country’s largest mining facilities, it serves as a continuous catalyst to GDP numbers. In June, this effect boosted activity in the sector by 21.6%. The strong reading follows on a bout of weakness registered in May, when the sector increased by “only” 14.0%, due to a strong drop in zinc and lead output at the Cerro de Pasco mine. Nevertheless, the favourable comparison effect in mining is finally drawing to an end. In fact, July numbers will for the first time reflect the beginning of operations. However, the downside effect will still be mild, as production at the Antamina mine was not ramped up to full production levels until the end of last year.

Healthy fishing spurs growth in primary manufacturing

The fishing sector mushroomed by 26.0% in June compared to the same month last year, the second positive monthly reading after five consecutive months of double-digit contractions. The positive performance was due to favourable fishing conditions, which allowed anchovy fishing throughout most of the month. The favourable fishing sector performance triggered a healthy recovery in primary manufacturing, which had suffered negative growth rates in the past five months due to lack of input. In June, manufacturing based on raw materials increased at an annual rate of 4.5%. In combination with non-primary manufacturing growth of 2.8%, this left annual growth of overall manufacturing at 3.1% in the sixth month of the year.

Construction picks up again but commercial activity slumps

Construction, returned to the double-digit expansion range (+10.3% year-on-year), following three consecutive months of more moderate growth rates. Commerce, on the hand, deteriorated notably and barely managed to remain in positive territory (+0.2% yoy), following on 4.3% growth in the preceding month. Finally, other services, which account for close to 40% of GDP, advanced 2.5%, also down from last month, when a 3.4% growth rate was reported.



Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Peru.  For more details please click here.


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