Peru’s Economy Contracts By 30% In Q2 2020
Peru’s gross domestic product (GDP) contracted by 30.2% year-on-year in the second quarter of 2020 (April to June) as the coronavirus pandemic continues to wreck havoc on the South American nation’s economy.
The 30.2% slump is the deepest decline of any major economy. The national mandatory confinement, which was in place throughout the second quarter of the year and was the strictest in the region, was the primary cause of the fall in the country’s GDP and was only lifted on the 1st July. The worst hit sector was hospitality, which fell by almost 90% versus the previous year. Construction (-67%), retail (-45%) and mining (-37%) were also significant contributors to the fall over the same period, while financial services (9.8%), public administration and defence (3.9%), telecommunications (2%) and agriculture (1%) all posted gains.
(sources: Bloomberg & Instituto Nacional De Estadistica E Informatica De Peru)
Domestic demand contracted by -27.7% as household consumption (spending on goods and services), government consumption expenditure (spending on public administration, defence, education and health) and gross fixed investment (construction, machinery acquisition and public investments) fell by 22.1%, 3.2% and 57.7% respectively. Exports and imports also decreased by 40.3% and 31.3% respectively.
Rising commodity prices, including copper and gold, should provide some relief, but the economy will still require effective and efficient support from the government. The World Bank forecasts a 12% drop in Peru’s GDP for 2020.
Peru is one of the Latin American countries that has been affected the worst by the coronavirus, with around 27,000 deaths and over 550,000 cases in a country with approximately 32 million people.
The Lima Stock Exchange has declined by 11% since the start of the year, but like most global markets there has been a recovery since the mid-March slump and has posted gains of 35% since the beginning of April. Peru was downgraded to a Frontier Market in March this year by FTSE and there have been murmurs that MSCI are currently looking at the the market and may follow its rival index compiler by doing the same thing.
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