Peru GDP growth could reach 9% with low inflation

While the developed world is reeling from slow growth and high debt.  The developing world is growing like mad.  It is not just from commodities based growth.  Peru, Brazil and Chile are reaping the effects from political stability and sound monetary and fiscal policies. 

Peru is one of the hotspots of the developing world with sustained economic growth making Peruvian people happier and more prosperous, via Bloomberg:

Policy makers unexpectedly raised the benchmark rate by 25 basis points last month from a record low 1.25 percent, the first increase since September 2008, amid signs of faster business and household spending. The International Monetary Fund expects Peru’s economy to grow 6.3 percent this year, faster than all of its neighbours in Latin America and the Caribbean.

Velarde, speaking at the Bloomberg Peru Economic Summit yesterday in Lima, said the economy is growing with “lots of force” in the second quarter, though so far he sees no signs of demand-side pressures on inflation.

The bank will keep pushing the rate up at a steady pace in the months ahead as growth beats expectations and May’s inflation rate was higher than forecast, said David Beker, chief Latin American economist at Bank of America-Merrill Lynch.
Growth Perspectives

Peru’s “scorching” recovery prompted Morgan Stanley this week to increase its economic growth forecast to 7 percent this year from 4.9 percent. Finance Minister Mercedes Araoz said reports that the economy is overheating are “exaggerated” and that any new steps to cool growth are the responsibility of the central bank.

“An economy growing at 6 percent isn’t overheating,” Araoz said at the Bloomberg Summit in Lima yesterday. “Overheating is growth of 9 or 10 percent.”

Economists raised their growth forecasts for this year to 6 percent from 5.5 percent previously in a monthly central bank survey published June 5. The analysts kept their annual inflation forecast at 2.5 percent.
Fiscal Responsibility
Recovering private investment will enable the government to trim 2.3 billion soles ($808 million) from the budget for services and investment projects after rising spending threatened to push the fiscal deficit to 2.4 percent of gross domestic product, over the authorized limit, Araoz said May 13.

The government aims to cut the fiscal deficit to 1.6 percent this year from 1.9 percent last year.

The Peruvian sol gained 1.5 percent this year through yesterday, the sixth-best performance among 26 emerging market currencies tracked by Bloomberg. At 11:30 a.m. New York time, the currency was little changed at 2.8456 per dollar from 2.8456 yesterday.


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