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Peru Country Risk Report Q1 2019

Peru Country Risk Report Q1 2019

Economic activity will remain robust over the coming quarters, although real GDP growth will slow from a peak in H218 Investment into the mining and con-struction sectors will be key drivers

We forecast that real GDP growth will accelerate to 4 0% in 2018 and 3 9% in 2019, from 2 5% in 2017

Peru's fiscal deficit will narrow over the coming quarters, lifted by rising mining royalties and new tax measures

From 2019, the government will enter a fiscal consolidation cycle, balancing higher spending on reconstruction and infrastructure against spending cuts in other areas of the budget

The Banco Central de Reserva del Perú (BCRP) will hold its benchmark policy interest rate at 2 75% through to the end of 2018, but higher inflation and accel-erating economic growth will lead the central bank to begin a rate hiking cycle in 2019

President Martín Vizcarra's position is strengthening amid waning support for the opposition Fuerza Popular (FP), and its embattled leader Keiko Fujimori Major Forecast Changes

We have revised down our average 2018 forecast for the Peruvian sol to PEN3 30/USD, from PEN3 28/USD previously, and our 2019 forecast to PEN3 28/USD, from PEN3 26/USD previously

We have revised our forecast for the fiscal deficit in 2018 to 2 8% of GDP, from 3 0% We expect it will narrow to 2 6% of GDP in 2019

Key Risks

A sharper slowdown in the Chinese economy than we currently expect, amid rising trade tensions, would pose significant downside risks to our growth, FX and balance of payments forecasts for Peru, given its exposure to China via export and investment channels

Despite President Vizcarra's solidifying support, his position remains somewhat tenuous, with further political upheavals in the country potentially under-mining investor sentiment Peru Country Risk Q1 2019


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Peruvian Economic Growth Will Remain Strong In 2019
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Rising Exports To Support Peru's Current Account
Outlook On External Position
TABLE: TOP FIVE GOODS EXPORTS IN 2017
TABLE: TOP FIVE GOODS IMPORTS IN 2017
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Peru To Hike Interest Rates In 2019
Monetary Policy Framework
Fiscal Policy And Public Debt Outlook
Fiscal Consolidation To Continue In Peru
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
PEN: Modest Appreciation Ahead
TABLE: CURRENCY FORECAST
Peru Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.Contents10-Year Forecast
The Peruvian Economy To 2027
Peru Will Outperform Over Coming Decade
TABLE: LONG-TERM MACROECONOMIC FORECASTS
TABLE: PRIVATE CONSUMPTION KEY TO GROWTH OUTLOOK
Political Outlook
Domestic Politics
Vizcarra's Position Strengthens As Allegations Fly In Peru
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Regional Tensions The Main Threat To Stability
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: FREE TRADE AGREEMENTS
TABLE: TARIFF AND NON-TARIFF BARRIERS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Continued Growth Divergence And Policy Risks Ahead
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: PERU – MACROECONOMIC DATA & FORECASTS

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