Economic growth in Peru could hit 6% this year thanks to new mining projects and a push on infrastructure projects, its economy and finance minister has optimistically told Emerging Markets.
However analysts warned the government was overestimating the recovery of the US economy and underestimating the slowdown in China.
Luis Miguel Castilla said growth this year would be between 5.5% and 6% thanks to increased copper production, aggressive promotion of public investment in infrastructure projects, sustained internal demand and recovery in global growth. “We are laying the groundwork for Peru to continue to keep growing,” he said.
But Carlos Adrianzen, dean of economics at the Peruvian University for Applied Sciences, said the weak performances of the US and China would have lower Peru’s growth potential.
Castilla insisted his growth calculations were based on conservative estimates for growth in the US and forecasts for China to grow between 7% and 7.5%, the average of most analysts.
Peru is the world’s third largest copper producer, but projects coming on line will push it past China to the second spot in the next few years.
Copper exports in 2013 were $9.8bn compared to total exports of $41bn. Nearly all of the $9.7bn in mining investment in 2013 was in new copper projects or expanding existing ones.
President Ollanta Humala’s government also has a series of huge infrastructure projects that will finally get moving in the second quarter of this year.
They include the $6bn construction of the second line of the Metro in Lima, the capital, $3.4bn modernization of the state-owned oil refinery on the northern coast, $4bn construction of a second gas pipeline in the south of the country, and the $600m construction of a new airport in Cusco, the principal tourist destination.
“There is a push to accelerate public-private partnerships. We will award more than $12bn in projects this year,” he said.
Analysts are divided about the government’s forecast for this year and 2015. Adrianzen said the outlook did not take account of disappointing figures for January or the increasing current accounts deficit, which was close to 5% of GDP last year.
GDP expanded 4.23% in January, below forecast and the slowest since last May, while exports revenue was down 16% compared with the same month last year.
The January trade deficit of nearly $900m was the largest in more than five years. Inflation also ran higher than expected in the first two months of the year, coming in at 0.9%. The upper end of the target set by the Central Reserve Bank is 3% for the year.
“The current account deficit has increased to levels that should have the administration concerned,” said Adrianzen.
But Carlos Rojas, CEO of Andino Asset Management, said Castilla’s forecasts were accurate even if some of the growth in 2014 would reflect a change in the mechanism used to calculate GDP. The weight of mining is now 15% of the calculation, compared with 5% under the earlier system.
“Peru’s macroeconomic performance will remain strong because of all the work done on re-profiling the debt and accumulating reserves. Debt is now 18% of GDP, which is a strong plus for the country,” he said.
Rojas said the new infrastructure projects provided an impetus to a number of sectors, including construction. Investment in construction this year is estimated $30bn.
Castilla said the current account deficit was higher than he would like, but that 5% was still acceptable. “Going beyond that would make me uncomfortable, but I am confident it will start declining in the next year or two,” he said.
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