Why Has Peru’s Economy Been Slowing Down?   

Latin America Advisor

Peru’s economy grew 2.19 percent last year, its weakest performance in a decade, the country’s statistics agency said Feb. 14. A day earlier, the country’s central bank kept interest rates unchanged at a nine-year low in an effort to encourage growth. Why has economic growth slowed in Peru? Will the country’s economy continue to struggle this year, or will it see a sharp rebound? Which industries face the strongest headwinds this year, and which will thrive?

Katya Rimkunas, deputy director for Latin America and the Caribbean at the International Republican Institute: “The Odebrecht scandal had significant political and economic reverberations in Peru. The criminal investigations that ensued toppled a sitting president and incriminated the previous three. Odebrecht investigations have also implicated private companies, journalists and CONFIEP, Peru’s largest business association. The governance crisis that ensued has persisted and been characterized by the volatile and contentious relationship between the executive power and Congress. This crisis, in addition to cabinet shifts and endemic corruption, has also affected the government’s ability to govern, partly seen in its inability to quickly bounce back from the 2017 mudslides that affected infrastructure. While Peru’s economy has largely remained stable despite these challenges, it is not surprising that political volatility has had an impact on growth, including the stalling of large investment projects. Economic rebound will partially be possible if the executive power and Congress can agree on a path forward for the various institutional reforms, key among which will be judicial and campaign finance reforms. Should President Vizcarra be able to pass these reforms through the newly-elected Congress, there should be a boost in investor confidence and increased trust in Peru’s institutional soundness. A potential unforeseen factor in Peru’s 2020 economic outlook is China’s coronavirus outbreak. How big or small of a factor it is will depend on the long-lasting effect in China’s commodity prices. Almost a third of Peru’s exports are directed to China, and central among these is its copper.”

Read the full Q&A here. 

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