Scotiabank on Peru GDP Figures, Burneo’s Fiscal Policy

Growth Holds Up Well In Q2, Overriding Political Noise

• GDP growth was 3.3% y/y in Q2, and continued to show extraordinary resilience. Growth was driven more by exports, 6.6%, than by domestic demand, 2.6%, but this has been the case for some time now. Perhaps more importantly, domestic demand, 2.6%, was actually slightly stronger, rather than weaker (as had been expected), than the 2.1% growth in Q1.
  • The bottom line is that Q2 was strong enough for Scotiabank to see upside now to their full-year 2022 forecasts of 2.6% GDP growth and 2.0% domestic demand growth, which are now under revision.
• Public sector (non-investment) spending plummeted 3.2% y/y in Q2, while public sector investment rose a paltry 1.8%. No wonder fiscal accounts have been so strong (the fiscal deficit was 1.0% in 2Q)!
• The big question, then, is will this change? Consumption growth cannot rely on pension fund withdrawals forever, and private investment will be hard put to improve significantly with so much political instability and higher interest rates.
• So, eventually the economy will slacken unless government spending steps in. The new Finance Minister, Kurt Burneo, is promising to do just that. A true Keynesian at heart, Burneo is bent on revving up fiscal motors to stimulate the economy. How much so and where will likely be revealed when the Ministry of Finance releases its Multiannual Macroeconomic Framework (Marco Macroeconómico Multianual, MMM) before the end of August.