IMF concludes consultation with Peru, economy recovering after El Niño

The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Peru.

The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Peru.

Peru has been one of the top performers in Latin America since the turn of the century. Robust growth has helped close the income gap with the largest regional economies and reduce poverty significantly, while inflation has remained low. Sound macroeconomic and structural reforms have played an indispensable role in this.

After a difficult 2017, the economy is recovering. Extreme weather caused by El Niño and spillovers from the Odebrecht investigation led to subpar growth in 2017, and the poverty ratio increased. While high commodity prices are currently supporting investment and broader economic activity, domestic headwinds have continued. The Odebrecht case led to the resignation of President Kuczynski. The authorities have also been facing the challenge of rebuilding infrastructure damaged by El Niño. In the face of this, the new Cabinet has moved quickly to implement various measures and receive special legislative powers from Congress to speed up the reconstruction and implement needed reforms. Recent indicators suggest a pickup in economic activity.

Against this backdrop, growth in 2018 is expected to increase to 3.7 percent, supported by countercyclical fiscal and monetary stimulus. In 2019–20, the recovery of private domestic demand is expected to push growth above 4 percent, even as gradual fiscal consolidation takes place. In the medium term, growth is projected to converge to its potential of 4 percent. Headline inflation is expected to gradually increase to the center of the central bank target range of 1–3 percent by end-2018.