Peru: Country Economic Forecast: 16 Feb 2012

GDP growth remained robust in 2011, albeit slowing to 6.6% in Q3 from 7.7% in H1, with latest data showing 11-month expansion at 7%. In December, the central bank projected growth at 6.8% in 2011 and 5.5% in 2012, above our forecasts of 6.7% and 4.5%. Earlier this month, the finance minister stated that 2011 growth could be 7% after an uptick at end year. Against a more difficult global backdrop, the 2012 outlook may be buoyed by stimulus measures, a 5% real rise in budget spending and a potential revenue boost from mining. Despite inflation exceeding the 3% target, rising to 4.7% at end 2011, the key interest rate has been held at 4.25% since May 2011. Inflation fell to 4.2% in January and is seen slowing towards target this year. Ollanta Humala made a positive start to his five-year presidential term with the broad aims of ensuring economic stability and aiding social inclusion. But in December, after less than five months and amid social protests over mining projects, he made major cabinet changes although the central bank and finance posts were unchanged. Humala and his Gana Peru grouping also lost congressional support from former premier Toledo's Peru Posible. The controversy over mining projects may continue, but Humala is committed to boosting such investment. In 2011 mining exports accounted for almost 60% of total exports, while a rise in the trade surplus to US$9.3bn helped to hold down the current account deficit to US$1.8bn in Q1-Q3.