Peru's economic outlook forecast to remain dim

Peru’s GDP in 2024, which market consensus puts at 2.4%, will not suffice to end the economic crisis, reduce poverty and reverse the decline in private investment.

But the trajectory will also not lead to major changes since reforms occurred historically during deeper crises or milestones like signing a free trade agreement with the US, Luis Miguel Castilla, economy minister between 2011 and 2014, told an event hosted by outlet SEMANAeconómica.

While inflation is falling and a base rate reduction is expected for next year, no public policy program nor major reforms to improve social indicators and recover investments are on the table.

Carlos Oliva, the head of the independent fiscal council and economy minister in 2018/19, said the fall in business confidence is explained more by a lack of government direction and policy planning, and less by a political crisis that engulfs the justice system and is marked by recurrent replacements of ministers, among others.

"Although it may not be desirable, the Peruvian business community has known how to internalize the issue of crises. However, not having a roadmap, not knowing what the government thinks, and not knowing what policies will be added to try to get out of the crisis, that is what is affecting confidence," Oliva said.

Castilla said regulations based on politics rather than technical know-how need to be eliminated, given the limited capacity to implement reforms. "This is achieved without the need for major political consensus. These regulations erode the ability to materialize investment projects in the short term."

Other problems originate from a drop in private consumption, although social indicators expected to no further deteriorate.

"In the best of cases, poverty by 2024 would be maintained compared to 2023 levels, but the figure will be close to 30%, which is very high," Carolina Trivelli, development and inclusion minister in 2011/12, said.

Factors like the slow recovery of the labor market, lack of household income and persistent inflation will lead to a higher poverty rate, which was 27.5% in 2022, according to official figures from May.

Public funding to help tackle the problem is woefully inadequate, Trivelli added. "The budgets that have been approved do not even manage to provide minimum resources to ensure continuity of programs that address hunger … and the fight against poverty," she said.