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Peru Country Risk Report Q2 2016

Peru Country Risk Report Q2 2016

Core Views The Peruvian economy will strengthen in the coming years, driven by production growth in the extractive sector, robust private consumption and infrastructure investment. The central government will post persistent, though narrowing, fiscal shortfalls due to lower government revenue growth. Weakening trade dynamics will drive depreciation in the Peruvian sol in 2016, with a modest appreciatory trend set to begin in 2017. Major Forecast Changes In response to a further weakening of Chinese metals demand, we reversed our forecast for export growth in 2016 and now expect a fourth consecutive year of export contraction, although at a much more modest scale.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Mining Sector Will Power Robust Growth
Real GDP growth in Peru will accelerate in 2016, driven by strong production growth in the country's extractive sector. Rising capital
expenditures and regulatory improvements will drive investment into key infrastructure projects.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Modest Deficits Will Persist In Response To Slower Growth
Peru's fiscal deficit will widen in 2016 as the country's ongoing economic rebound weighs on revenue growth and encourages
expenditure expansion. However, prudent fiscal policy will ensure the deficit begins to narrow in 2017, supporting the government's
sovereign credentials.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
External Trade And Investment Outlook
Weakness Abroad Will Mask Underlying Strength
Peru's current account deficit will narrow modestly in 2016 as import declines outpace continued export weakness. The country's strong
investor appeal will support capital inflows that will fund the deficit and underpin its stable external position.
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS IMPORTS IN 2014
TABLE: TOP 5 GOODS EXPORTS IN 2014
Monetary Policy
Persistent Inflation Will Drive Additional Rate Hikes
The Banco Central de Reserva del Perú will continue its rate hiking cycle in 2016 in an attempt to rein in inflation. Inflation is set to
remain above-target through 2017, as a result of the sol's depreciation, accelerating growth and rebounding energy prices.
Monetary Policy Framework
Currency Forecast
PEN: Bottom In H116, Modest Rebound Thereafter
The Peruvian sol will base in H116 near its 20-year lows as the Banco Central de Reserva del Perú reduces its support for the unit.
TABLE: BMI CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Peruvian Economy To 2025
Robust Growth Ahead As Economy Diversifies
Peru will see robust economic growth in the coming years, as its mining-driven economy gradually diversifies. Private consumption will
increasingly drive growth, while fixed investment flows will lead to improving infrastructure.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Fujimori Presidency Highly Likely
Centre-right candidate Keiko Fujimori will likely win Peru's presidency in a run-off election in June, bolstered by voters' desire for
a leadership change in response to slowing growth and rising security concerns. Fujimori's Fuerza Popular party will pursue an
investment-friendly reform agenda, brightening the country's growth outlook.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Mining Disputes Main Threat To Stability
Peru's long-term political stability is undermined by key structural risks, most prominently associated with mining and hydrocarbons
exploration in the country's Amazon region. Concerted efforts will be needed to address this issue, along with the ongoing problems of
corruption and coca cultivation, if the country is not to be under increasing threat from populism. Nevertheless, our core scenario is for
the country's ongoing export-led growth to raise living standards, creating a core of middle-class stability that will act as a buffer against
other risks.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance Analysis
TABLE: DOCUMENTS REQUIRED TO EXPORT AND IMPORT
TABLE: PROCEDURES, DURATION AND COSTS (USD)
TABLE: LATIN AMERICA – TRADE PROCEDURES AND GOVERNANCE RISKS
Vulnerability To Crime Analysis
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Tail Risks Mounting Amid Sub-Par Growth
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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