Peru Lowers 2015 GDP Forecast to 4.2% With Downward Bias

Peru’s Finance Minister Alonso Segura said additional fiscal stimulus measures aren’t required to revive growth after he cut his 2015 forecast for economic growth for the second time in two months.

Gross domestic product likely will rise 4.2 percent this year, Segura said at an event in Lima. Segura on Jan. 29 lowered his 2015 economic growth forecast to 4.8 percent from more than 5 percent previously.

South America’s fastest growing economy of the last decade expanded 2.4 percent in 2014, the slowest pace since 2009, leading the central bank to cut borrowing costs three times in the past year. The government in November announced plans to cut corporate and personal income taxes and increase capital spending, which Segura described Friday as a “bazooka” for growth.

“We did all the work through November, and now we’re in the implementation phase,” Segura said.

Fiscal stimulus in 2015 will be the equivalent of 1.8 percent of GDP, the highest in 15 years and more than double 2014’s level, he said.

November’s package was designed in part to offset lower investment by local governments this year as new authorities settle into office following October elections, he said.

Investment, Stimulus

The economy cooled last year as mining investment slowed amid falling copper exports from the world’s third-largest producer. Though private investment is expected to hold at around last year’s level, should it fall, economic growth will be lower than 4 percent, he said.

Copper production from new mines and $33 billion public-private infrastructure projects will bolster growth through 2017, he said. The ministry’s 2016 GDP forecast of 5.5 percent has an “upward bias” for those reasons, he added. Peru’s potential GDP growth is about 5 percent, he said.

Copper output is projected to rise 9 percent in 2015 and 27 percent in 2016. Zinc and iron output will also rise, offsetting declines in gold output, Segura said.

“Economic growth will be much higher in 2016 and 2017,” Segura said.

The Finance Ministry sent a bill to Congress Thursday that would allow it to exceed the structural budget deficit limit for the next three years in order to stimulate growth.

The government plans to post a structural budget deficit equivalent to 2.5 percent of GDP this year, before lowering it to 2 percent in 2016, 1.5 percent in 2017 and 1 percent in 2018, Segura said. Under the government’s so-called fiscal rule, the structural deficit shouldn’t exceed 1 percent of GDP.

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