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China Rebound to Help Peru Reach Economic Targets, Velarde Says

Peru may reach or exceed its economic growth targets for this year, bolstered by domestic demand and a rebound in China in the third quarter, the president of the Peruvian central bank said.

Inflation in South America’s sixth-largest economy is no longer a problem, allowing the government to keep interest rates on hold for a while, Julio Velarde said in an interview in Shanghai today.

“I believe we are going to grow close to 6 percent,” Velarde said. “I am optimistic the slowdown in China will be only in the second quarter and the third quarter it will recover and there won’t be a meltdown in Europe.”

Peru’s economy expanded at the slowest pace in more than two years in April as weaker demand for metals and manufacturing exports offset a surge in construction. Growth will be 5.8 percent this year and 6.2 percent in 2013, which is close to potential, the central bank said in a June 15 report.

The price of copper, Peru’s top export, is down about 21 percent in the past year as the slowdown in China, the biggest consumer of industrial metals, crimps demand. Metal prices are poised to rebound, Velarde said.

“Some mining projects of copper have been delayed around the world so we will probably have in the next two years good prices -- unless there is a bigger slowdown, of course, in the world economy,” Velarde said.

Newmont Mining Corp. (NEM)’s $4.8 billion Minas Conga copper and gold project in Peru has been suspended because of opposition from farmers on the potential environmental effects.

China Slowdown

The Chinese government has been “acting pretty strongly” in trying to revive an economy that grew in the first quarter at the slowest pace in almost three years.

China announced on July 5 that it was cutting interest rates, the second reduction in a month, amid concern Europe’s debt crisis will curb exports. The Shanghai Composite Index fell to a six-month low yesterday after a government report showed imports rose less than anticipated in June while export growth slowed.

China’s inbound shipments increased 6.3 percent from a year earlier, the customs bureau said in a statement yesterday, compared with the 11 percent median estimate in a Bloomberg News survey of 32 economists. Overseas sales gained 11.3 percent.

Slowing Chinese trade is a reflection of Europe’s economic problems as well as the government’s efforts to shift more toward domestic consumption, according to Velarde, who said he is meeting with financial authorities later today.

A Chinese statistics bureau report on July 13 is expected to show the economy expanded 7.7 percent in the second quarter, the slowest pace since 2009, according to the median estimate in a Bloomberg News survey.

Economic Rebound

“Of course we are concerned about the slowdown in China,” Velarde said. “We hope the measures they have been taking will allow the Chinese economy to recover at a stronger pace in the third quarter as many analysts are expecting.”

Velarde is part of a delegation of Peruvian government officials that are on a roadshow across Asia, including visits to Hong Kong and Singapore.

Peru posted its first trade deficit in more than three years in April as exports dropped 12 percent. China is the top destination for Peru’s overseas sales and accounted for 17 percent of total shipments in the first quarter, according to Comexperu.

Peru’s central bank kept borrowing costs unchanged in June for a 13th month. Consumer prices climbed 4.1 percent in May from a year earlier. The monetary authority targets annual inflation of 1 percent to 3 percent.

Inflation will be between 2.5 percent and 2.8 percent this year, said Velarde. Peru won’t cut borrowing costs unless Europe’s debt crisis and slowdowns in the U.S. and Chinese economies worsen, he said. The central bank will leave the overnight rate at 4.25 percent on July 13, according to all 12 estimates in a Bloomberg News survey.

“Domestic demand is still pretty strong,” Velarde said. “If we see the international situation getting worse we may consider a reduction or if we see a rebound because the European situation is resolved, we may go in the other direction.”

To contact the reporter on this story: Allen Wan in Shanghai at awan3@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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