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Peru Heading for Deepest Slowdown in Decade, Kuczynski Says

Peru’s government is underestimating the impact of falling export revenue on the commodity-dependent economy, which is heading for its slowest period of growth in a decade, according to former Finance Minister Pedro Pablo Kuczynski.

The pace of expansion will likely remain around 4 percent to 5 percent for the next two years as slower global demand depresses the price of metals that account for close to 60 percent of exports, Kuczynski said in an interview in Lima today.

South America’s sixth-largest economy will expand 5.7 percent this year and 6 percent in 2014 the Finance Ministry said Aug. 28. Though stronger U.S. and European growth will likely boost demand for metals, it can’t fully compensate for weaker Chinese demand, he said.

“The first six months of the year were not bad, the second half will be much slower,” said Kuczynski, Peru’s most influential economist according to a poll published this week by Lima-based Semana Economica magazine. “We’re having a slowdown -- that happens in the world -- but we’ll pull out of it in the next few years.”

President Ollanta Humala’s government has pledged this year to award $10 billion of contracts to build railways, roads and power plants and cut red tape to spur investment after exports slumped.

The Finance Ministry forecasts a 0.3 percent fiscal surplus this year and a balanced budget in 2014. While new mines will spur output, lower prices will reduce revenue and hurt tax collection, creating a fiscal deficit of at least 1 percent next year, Kuczynski said.

Investor optimism about the outlook for growth in July fell to its lowest since Humala was elected two years ago.

Peru’s economy, which grew an average 6.5 percent a year in the last decade, expanded 4.4 percent in June from the same period of 2012, the second-slowest pace in more than three years.

The pace of growth will rise to 7 percent to 8 percent from the second half of 2016 as $15 billion of mining projects come on stream, Kuczynski said. An additional $30 billion of potential mining projects could be developed and extend the investment boom, he said.

Peru’s sol fell 0.1 percent to 2.81 per U.S. dollar at 1:07 p.m. in Lima, according to Datatec prices.

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