Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 45
THE DRUMMER'S EAR | RHYTHMIC REASONING
From an expenditure standpoint, household consumption has now
expanded by 3.5%+ y/y for four consecutive quarters (3Q24-2Q25),
helped by low inflation and stable labour markets with strong
growth in formal employment (Fig. 2). The recent approval of
another round of pension funds withdrawals which we estimate
will begin in November should also boost personal spending into
2026, presenting a significant upside risk to our latest GDP growth
forecasts 2.9% for the year—with only a minor boost to 2025
given its timing. Based on the experience of previous pension
withdrawals, we estimate the latest planned round could lift annual
household consumption growth by 0.8ppts, for an overall GDP
boost of 0.5ppts.
Fig. 2: Strong employment gains and nearly two
years of real wages growth support consumption
transition upon the April elections will likely see public expenditures
sticking to a ~1.5% annual growth rate next year, in line with
estimates for 2025.
Fig. 3: Infrastructure investment will be a key growth
engine for Peru (Public-Private Partnership projects)
12,000
10,000
USD mn, PPP awards
Shougang iron ore mine in mid-year weighed on the industry’s GDP,
acting as a slight drag on overall Peruvian GDP growth this year.
8,000
6,000
4,000
2,000
0
2011
2014
2017
2020
2023
2026e
12%
Source: Proinversión, Scotia Wealth Management.
YoY % change
6%
0%
-6%
-12%
2016
2018
Formal private empl.
2020
2022
2024
Real avg monthly wages (3mma)
Source: BCRP, Scotia Wealth Management.
The low rates environment and supportive commodities backdrop
(and firms continuing to internalise political noise) has lifted
investment as a key driver of Peruvian GDP growth, with private
fixed investment rising by an average of ~9% over the first half
of 2025. These trends have also been reflected in a surge in
imports (a negative in GDP accounting), although their productive
use towards investment is encouraging. Infrastructure spending
(with the backing of public-private partnerships, Fig. 3) is set to
be a major driver of growth in the medium-term, accompanied by
mining investment, and a reacceleration in residential construction.
Longer-run commodity expectations were also unchecked by U.S.
trade uncertainty, which even proved to be a positive for Peru
due to higher copper and gold prices, while current U.S. copper
tariffs do not impact ores or concentrates which represent Peru’s
main mining export. Chinese economic developments have also
not (yet, at least) had a significant impact on Peru’s external sector,
while firms remain focused on an encouraging long-term outlook
regarding investment decisions in the extraction sector.
On the flip side, public spending jumped at the start of the year
but is now expected to soften overall GDP growth in current and
coming quarters with the government intending to scale back
spending growth in order to comply with fiscal rules. In 2026,
spending caution as well as disruptions linked to the government
The outcome of next year’s vote remains difficult to call, with
parties yet to define their candidates and over 40 different parties
registered for next year’s contest still to settle into rough wouldbe alliances. Early polls fail to consistently show any candidate
garnering over 10% of voting intentions, with only a handful with
5% or more in support, while practically half of those surveyed by
Ipsos in mid-September are either undecided or do not intend to
vote for surveyed candidates, among other reasons.
Nevertheless, we think political turbulence is at least unlikely
to be worse than over the past decade. A business-friendly
presidency, in tandem with a strong metals prices backdrop, could
significantly lift investment (even more) in the aftermath of the
election. The reverse is also true, of course, and it may be a few
months before we achieve greater clarity as the field narrows
down. Note that Peruvians will also select a new Congress, whose
composition will also be key for lawmaking and its relationship
with the executive branch. Despite and aside electoral uncertainty,
economic fundamentals and amenable monetary policy continue
to back solid growth in Peru in 2025 and 2026.
Peru’s central bank remains among the few around the globe facing
an unquestionably benign inflation backdrop (Fig. 4). Headline CPI
inflation has sat at or below 2% every single month since May 2024
(outside of a 2.05% November print), with core inflation also seeing
a strong deceleration so far in 2025, going from closing last year
at 2.6% to now 1.8% as of August. Muted CPI prints have steadily
influenced inflation expectations lower, allowing the BCRP to make
slight adjustments via rate cuts to its real policy rate to maintain a
neutral stance, but we think there is little to no room for additional
easing with inflation expected to reconverge around 2% in the next
few months. Elections on the horizon and the Federal Reserve’s
own policy stance are also considerations to keep policy steady,
and Peru’s economic trends are certainly not suggestive of a need
for looser monetary conditions.
45 of 62
