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JPMorgan Say Uncertainty To Continue Weighing On Economy

PERU
  • The political instability continues to weigh, yet with more limited impact on idiosyncratic risk premia than months ago. The latest political development is the new constitutional complaint filed by the attorney general against the President. As expected, Castillo denies any wrongdoing and vowed late on Tuesday to finish his term in 2026.
  • Congress is poised to discuss whether to approve the accusation, with the intention of suspending him from office. The legislative process is to start on Friday, with Constitutional Accusation Sub Commission weighing in on the merits of the accusation. They have 10 labor days to respond if the accusation is admitted for discussion or not.
  • In all, political uncertainty is to continue weighing on the economy, in particular capex, reinforcing the forecast for below-potential GDP growth next year. However, JPM do not foresee a material impact on financial risk premia, at least in the magnitude observed when the Castillo administration previously flirted with the idea of a Constituent Assembly, triggering a severe episode of residents’ portfolio outflows.
  • JPM’s base case assumes an ordered process according to the constitutional arrangement in case the Congress decides to suspend and/or impeach President Castillo.
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