By Ryan Dube and Robert Kozak
LIMA, Peru--After a slight slowdown last year, Peru's economy is
rebounding, leading to forecasts that it could be a star performer
in Latin America this year.
Peru's government said Tuesday that gross domestic product
expanded 5.72% in February, led by strong gains in mining, fishing,
banking, and construction.
Finance Minister Luis Miguel Castilla forecasts 2014 growth
between 5.5% and 6.0%, with the pace picking up during the year as
various base metals mines boost output.
The World Bank says Peru will be the second-best-performing
economy in Latin America this year, following only Panama, even as
growth weakens in neighboring nations such as Brazil and Chile.
"The macroeconomics in Peru have been very well managed, and
fiscal policy has been very good," said Andrew Powell,
Inter-American Development Bank's principal adviser in the research
department.
He said that during the boom of the last few years the
government didn't allow the local currency to overvalue, which
would have hurt manufacturing, while it built up substantial
foreign reserves as a war chest.
Among the potential risks facing the economy are a downturn in
China, a major commodity buyer, and any undue tightening of
monetary policy in the U.S., he added.
Peru's biggest business organization, Confiep, said that Peru's
economy is still benefiting from strong domestic demand, but warned
that several overhauls are necessary to continue growth in the
medium term.
Confiep President Alfonso Garcia Miro said in an interview that
one of the main risks to Peru's economy is political uncertainty
that has created "a climate of instability and confusion that has
affected Peruvian consumers."
"The state has to be more aware to promote investments and not
be an obstacle," he said.
Over the last decade investors have flooded into Peru,
especially into mining but also into banking and retail. Shopping
malls have opened as foreign retailers poured in. Vehicle sales
have boomed, as have housing markets.
Direct foreign investments were only $1.3 billion in 2003. This
year FDI is seen at about $9.3 billion, according to government
data..
Many companies are betting on Peru's rich deposits of copper,
zinc, silver and gold.
Late last week global warehousing and logistics company Impala,
a subsidiary of Trafigura Beheer BV, inaugurated an $80 million
expansion at a mineral concentrate warehouse at the port of Callao,
and is looking at investing $45 million more.
"Commodity prices are a concern because that affects our
clients, but we would rather have the infrastructure in place and
not the clients, instead of the other way around," Impala Managing
Director for Latin America Thomas Savage said in an interview.
This month, Glencore Xstrata PLC announced the sale of the giant
Las Bambas copper mine project to a Chinese consortium for $5.85
billion. That follows the coming on stream late last year of the
large Chinese-owned Toromocho copper mine.
Peru's government, meanwhile, recently awarded the concession
for the construction of a $5.6 billion underground metro in Lima,
and plans to move ahead with a $3.5 billion upgrade of a
state-owned oil refinery.
"You have to take into account that we have been seeing an
acceleration in the awarding of concessions, and this is going to
help the growth of private investments," Central Reserve Bank of
Peru Chief Economist Adrian Armas said.
Peru's finance ministry, meanwhile forecasts public-sector
spending this year at 6.4% of gross domestic product, the highest
level in 30 years.
Scotiabank Peru economist Pablo Nano said that in the second
half of this year many of the planned investments "will start to
become a reality, but the majority of the positive impact will be
felt in 2015."
Waldo Mendoza, the head of the economics department at Peru's
Catholic University, is somewhat less optimistic, pointing to last
year's sharp decline in private investments, and recent surveys
that show declining business confidence.
"With these, we have to add that the prices for minerals have
declined over the last year or two. All of these factors make me
believe that Peru's economy is going through an unfavorable shock
similar to what is going on throughout Latin America and that
economic growth will be slower than the [government's] forecast,"
he said.
Peru's economy expanded 8.8% in 2010, 6.9% in 2011, 6.3% in 2012
and 5% last year.
Write to Ryan Dube at
Ryan.dube@wsj.com<mailto:Ryan.dube@wsj.com> and Robert Kozak
at robert.kozak@wsj.com<mailto:robert.kozak@wsj.com>