GDP grew by 8.8% in 2010 and all the signs are that expansion is being sustained ahead of the change of government at end-July. Annual growth in Q1 this year was 8.8%, led by double-digit growth in manufacturing and commerce, and the central bank expects 7% GDP growth this year, versus 7.5% projected by the IMF and our forecast of 6.3%. Last year's accelerating recovery led the central bank to tighten policy. Interest rates rose by 175bp in May-September 2010 to 3%, a rate that was held in Q4 with end-2010 inflation on target at 2.1%. So far this year, with growth still strong and price pressures mounting annual inflation rose to 3.3% in April monthly interest rate hikes of 25bp lifted the key rate to 4.25% in May. Buoyant export growth, which offset rising imports to lift the trade surplus to US$6.7bn in 2010 from US$5.8bn in 2009, continued in Q1 this year when a US$1.8bn surplus was posted. After a US$2.3bn current account deficit in 2010, the central bank expects the shortfall to rise to US$5.7bn in 2011 (about 3.3% of GDP), while our forecast now stands at US$5bn. A marked change in political leadership is expected when President Alan Garcia's term expires on 28July. A second-round vote for president on 5 June between leftist radical Ollanta Humala and conservative Keiko Fujimori, daughter of the jailed former president, is being closely fought but Keiko has edged ahead. Either candidate would need to construct a majority in Congress.