Peruvian Economy Grows 11.9% in June, Fastest Annual Increase in Two Years

Peru’s economy expanded at the fastest pace in two years in June, led by a surge in manufacturing and rebounds in fishing and mining.

Gross domestic product rose 11.9 percent in June from the same month a year earlier, the national statistics agency said in a report today. Economists expected 10.8 percent growth, according to the median estimate of 10 analysts surveyed by Bloomberg. The economy last expanded at a faster pace in June 2008 when GDP rose 13 percent from a year earlier.

Public spending on infrastructure coupled with company investment in the first six months of the year is fueling a rebound in domestic demand. Government spending needs to slow to reduce the risk that the $127 billion economy overheats, said Hugo Perea, chief economist at Banco Continental.

“Fiscal spending is still contributing to growth when it’s no longer necessary,” Perea said in a phone interview from Lima. “The current pace of growth is well above Peru’s long- term potential, which could cause prices to rise in the coming months.”

Manufacturing expanded 21.6 percent in June from a year earlier while fishing rose 9.5 percent and mining increased 7.9 percent after declines in May and April. Construction rose 22.7 percent.

“In August, growth should still be pretty strong,” central bank Governor Julio Velarde said in an interview at Bloomberg headquarters in New York today. “We expect the fourth quarter to be a little more than 6 percent.”

Jobs, Rate Calculations

In a separate report, the statistics agency said that unemployment fell to 7 percent in July from 7.6 percent in June, matching the median of six forecasts compiled by Bloomberg. It’s the lowest jobless rate since at least July 2001, when the agency began the data series.

The government implemented a two-year, $4.8 billion fiscal stimulus plan in 2009 after the global financial crisis sapped private investment. Peru’s GDP grew 0.9 percent last year, the slowest pace since 0.2 percent growth in 2001.

The government has begun to limit spending on services and public projects, and halted the use of contingency funds, Finance Minister Mercedes Araoz said Aug. 12.

Government outlays on infrastructure rose 38 percent in the first half of this year while private investment rose 27 percent, Araoz said.

After ending at 0.25 percent in 2009, annual inflation accelerated to 1.82 percent in July. Rising prices coupled with surging growth has led the central bank to raise the reference rate to 2.50 percent from 1.25 percent since April.

“Monetary stimulus has to be removed and the pace and timing will depend on the data we receive,” Velarde said.

Peru’s sol gained 0.1 percent to 2.8025 per dollar at 12:53 p.m. New York time, from 2.8045 on Aug. 13.

-- Editors: Robert Jameson, Brendan Walsh

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net; Fabiola Moura in New York at fdemoura@bloomberg.net

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Peruvian Central Bank Governor Julio Velarde

Jonathan Fickies/Bloomberg

Central Bank Governor Julio Velarde said that in August "growth should still be pretty strong."

Central Bank Governor Julio Velarde said that in August "growth should still be pretty strong." Photographer: Jonathan Fickies/Bloomberg