According to current IPE estimates, the Peruvian economy would grow 3.0% in 2024
Peru's production grew 3.16% in September 2024, explained by the positive evolution of 13 economic sectors, including Other Services; Commerce; Transportation, Storage and Messaging; Manufacturing; Services Provided to Companies and Telecommunications, according to the National Institute of Statistics and Informatics (INEI).
Thus, between the months of January and September 2024, the country's economic activity grew by 2.98% and in the annualized period (October 2023-September 2024) it showed a variation of 2.12%.
In this way, the Peruvian economy accumulated six consecutive months of expansion. In April the economy grew 5.38%, in May 5.15%, in June 0.21%, in July 4.47% and in August 3.53% according to the INEI. Additionally, between January and September Peru expanded in eight of the last nine months.
For its part, the Peruvian Institute of Economics (IPE) noted that with this result, growth in the third quarter was 3.7%, slightly higher than that observed in the second quarter (3.6%). "This is explained by the acceleration of the non-primary sectors (4.1%, after having grown 2.5% in the second quarter), despite the fall in agricultural activity (-1.9%) and fishing (-11.1%)," it said in a statement.
The largest contribution to third-quarter growth came from the acceleration of consumption-related sectors (3.8%), such as trade and services. Trade grew 3.2%, its highest rate since 1Q22, while services grew 3.9%, the best result since 2Q22. The greater dynamism of consumption occurred in a context of recovery of formal employment and real income, coupled with greater household liquidity due to the extraordinary withdrawal of funds from the AFP. Also worth noting is the recovery of non-primary manufacturing (5.8%), which grew for the second consecutive quarter (0.7% in 2Q24), after six quarters of decline, and at its highest rate since 2Q22. This acceleration was due to the increased production of consumer goods, such as clothing and furniture.
"The results of the non-primary sectors managed to offset the slowdown in primary GDP, which grew 2.3% after growing 7.2% in the second quarter. Agriculture was affected by adverse weather conditions, while fishing fell due to a base effect, since there was no exploratory fishing in August this year, unlike in 2023. However, after having fallen in the previous quarter, a recovery was observed in the mining and hydrocarbon sector (4.3%), partly due to better mineral grades and a base effect in gas production, given the stoppages of operations in 3Q23," IPE commented.
National employment accelerated in the third quarter
National employment grew by 0.6% in the third quarter, creating almost 100,000 jobs. This represents a faster pace of growth compared to the previous quarter (0.2%), but is still insufficient to recover the 157,000 jobs lost in 2023. The quarter's growth is due to a 0.9% increase in urban employment (130,000 jobs created), while rural employment fell by 1% (32,000 fewer jobs). Thus, employment grew in 16 of the country's 26 main cities, especially in Lima, which has maintained growth rates above 4% so far this year, and in the southern and eastern areas, due to the recovery after the falls experienced in the third quarter of 2023.
The manufacturing sector (11.7%) was the one that most boosted employment in this period, with 163,000 jobs created, in line with the greater dynamism of this activity. In contrast, the decline in agricultural employment continued, reflected in a 1.7% reduction in the primary sectors, a loss of 68 thousand jobs. However, it is worth mentioning that this fall is less than that of the previous quarter (-4.6%), which gives indications of a recovery going forward. On the other hand, the main group of the population that continues to be affected are young people. Youth employment (from 14 to 24 years) fell 4.4% in the quarter, which is equivalent to 109,000 lost jobs, which means that it has been declining for ten consecutive quarters. This is largely explained by the 3.3% drop in the economically active youth population, that is, 92,000 young people stopped participating in the labor market compared to last year.
Meanwhile, employment quality indicators have improved in the last year, but only incipiently. The informal employment rate rose to 71.2% in the period between October 2023 and September 2024, a figure slightly lower than that recorded a year earlier (71.9%). Underemployment also fell, reaching a rate of 47.6% between October 2023 and September 2024, lower than the 48.5% of the previous year. In addition, workers' income grew 2.7% in real terms - that is, adjusted for inflation - in the last year. However, according to IPE estimates, these are still around 8% below pre-pandemic levels, meaning that Peruvians' wages have lost almost S/150 (US$39) of purchasing power. Solving these challenges requires a greater boost to private investment, the main generator of quality employment and better income, and ensuring policies that promote greater labour competitiveness.
Fiscal deficit remains at three-year highs
Likewise, according to MEF data, public investment continued to slow down in October, registering a growth of 10.2% in real terms, lower than the 13.2% increase in September. However, this effect was offset by higher spending on salaries, which grew 14.1% in October in real terms, double that recorded in the previous month (7.3%). As a result, the fiscal deficit rose to 4.1%, a three-year high. The IPE estimates that, by the end of 2024, the deficit would rise to 3.7%, breaching the fiscal rule (2.8%) for the second consecutive year, in a context in which, on the verge of debating the 2025 public budget, there is no deputy minister of finance for more than two months.
Perspectives
Leading activity indicators show mixed results at the beginning of the fourth quarter. On the one hand, according to COES figures, electricity demand grew 1.8% in October, slightly higher than the 1.3% recorded in September. This acceleration is due to greater household demand, which would maintain the dynamism of the sectors linked to consumption. In contrast, a 5.9% drop was recorded in the demand for mining electricity, which anticipates lower activity in the sector.
Meanwhile, business expectations regarding the economy in the short term remained optimistic in October for the fifth consecutive month. This, together with the growth in imports of capital goods (7.6% in real terms, according to preliminary figures), would continue to drive the recovery of sectors linked to private investment, such as construction and non-primary manufacturing.
In the remainder of the year, the effects of AFP withdrawals, which have been supporting private sector spending, are expected to dissipate. However, the environment of lower inflation, which has been within the BCRP's target range for seven months (from 1% to 3%), lower financing costs and greater business confidence are expected to support the dynamism of economic activity.
According to current IPE estimates, the Peruvian economy is expected to grow by 3.0% in 2024. As every quarter, the IPE will present an update of its macroeconomic projections at the beginning of December.
