Peru: Economic Outlook
Luis Miguel Castilla Minister of Economy and Finance May, 2013
Peru is among the fastest growing economies with lowest inflation • Peru’s story of success is based on: Sound economic policies Sustained increases in productivity Private investment as the engine for growth Trade integration with the World • Economic growth has led to a sustained reduction in poverty and an increase of the middle class.
2
Peru’s macroeconomic performance over the past decade has been exceptional LATAM: Real GDP Growth and Inflation (2002-2012) 14
LATAM: GDP Growth and Inflation
12 Average Inf lation rate (%)
(Average % change)
Argentina
10 8
Peru Chile Mexico Colombia Brazil Argentina
Brazil
6
Mexico
Colombia
4
Peru
2
Chile
GDP 6.4 4.4 2.3 4.5 3.6 5.6
Inflation 2.8 3.3 4.4 4.8 6.4 11.5
0 0
1
2 3 4 5 Average Real GDP Growth (%)
6
7
During 2002-2012, Real GDP grew at an average annual rate of 6.4 percent (the highest in Latin America), and the annual inflation rate fell to 2.8 percent on average (the lowest in Latin America). Source: MEF, IMF
3
Economic growth has reduced poverty More Decentralized Jobs
Reduction of Poverty and Extreme Poverty
(Urban Peru firms with 10 or more employees) (Accumulated% change Jan-Dec. 2012 / Jan-Dec. 2002)
(% of population)
100
55.6
49.1 37.3
40
33.5
60 30.8
30
20
2005
2006
2007
2008
2011
2012
More adequate employment (Metropolitan Lima,% of total employment)
2002
61 Underemployment
2012 41 Underemployment
Adequate employment 39
Adequate employment 59
Source: INEI, MTPE.
4
Piura
2010
Ica
2009
0
0 Trujillo
6.0
Puno
6.3
Arequipa
7.6
Huancayo
9.5
Tarapoto
10.9
Cusco
11.2
Metr. Lima
13.8
10
2004
40
Chiclayo
15.8
25.8
Tacna
16.4
27.8
Pucallpa
20
Peru: average growth 61.4%
80 42.4
Chincha
50
Iquitos
58.7
120
Extreme poverty
Cajamarca
60
Total poverty
Pisco
70
Risk factors
•
Intensification of the Eurozone crisis.
•
Slowdown in China’s economic performance.
•
Weaker U.S. growth.
•
Plummeting commodity prices (60% of total exports).
•
Less private investment due to a deterioration in expectations.
5
Slower world growth…
IMF: World GDP Forecast 2013
IMF: GDP Forecast 2013
(Annual % change)
(Annual % change) 10
4.5
January 2013
April 2013
8.2 8.0
4.1 8
3.9
4.0
3.6
6
3.5
3.5
3.3 4
3.5 3.3
3.0
2.0 1.9
2
2.5
0 -0.2 -0.3
2.0
-2
April 2012
July 2012
October 2012 January 2013
April 2013
World
Source: IMF, Bloomberg.
6
Euro area
USA
China
... is affecting the economic performance of Latin America Chile and Mexico: GDP
Brazil and Colombia: Industrial Production
(Annual % change)
(Annual % change)
10 Chile
25
Mexico
Brazil
Colombia
20 15
5
0
4.1
10
0.8
5
0 -3.3
-5 -5
-10 -11.5
-15 -10
-20 06Q1
07Q1
08Q1
09Q1
10Q1
11Q1
12Q1
13Q1
M-09
M-10
Peru: GDP (Annual % change) 12 10 8 6
4.8
4
2 0 -2
06Q1
07Q1
08Q1
09Q1
10Q1
Source: IMF, Bloomberg.
7
11Q1
12Q1
13Q1
M-11
M-12
M-13
Metals: Prices record strong downward corrections in short periods Copper Price
Gold Price
(US$ cents/pound)
(US$/troy ounce)
500
1,900 1,800
460
1,700 420
1,600
380 1,500 340
Prices fell 9.8% between 10 and 23 April
1,400
300
E-11
Prices fell 12.4% between 10 and 16 April
1,300
A-11
M-12
O-12
M-13
E-11
A-11
Metal Prices (Prices, % change)
Copper Gold Lead Zinc Silver
US$ cents/pound US$/troy ounce US$ cents/pound US$ cents/pound US$/troy ounce
Closing Price 22.05.13 339 1,409 93 83 22
1/ Prices updated to May 22, 2013. Source: Bloomberg.
8
% change % change vs. 31.12.12 vs. 22.05.12 -5.5 -3.8 -15.0 -11.0 -12.2 6.5 -9.5 -3.1 -26.5 -20.9
M-12
O-12
M-13
The share of commodities in economic activity and fiscal revenues is less than in other peer countries
Commodity Revenue
Estimated impact on total revenue caused by a fall of 25% in commodity prices
(% of total GDP, Average 2006-2010) Peru
Ecuador
4
Bolivia
Chile
6
Trinidad & Tobago Venezuela
Ecuador Mexico
7
Mexico Chile
8
Peru
Bolivia Trinidad & Tobago Venezuela
11
Colombia Argentina
17
-4,5 -4,0 -3,5 -3,0 -2,5 -2,0 -1,5 -1,0 -0,5 0,0
19
Percent of potential GDP
Sources: IMF, 2012, “Fiscal Frameworks for Resource Rich Developing Countries”, May. IDB, 2013, “Rethinking reforms, How Latin America and the Caribbean Can Escape Suppressed World Growth”, March.
9
Peru has strong economic fundamentals to face external shocks Peru: Overall Balance of Non-Financial Public Sector (% of GDP)
Peru: Net International Reserves (NIR)1 (US$ Million)
NIR for 20 months of imports
80,000
60,000
6 years of fiscal surpluses in the last 9 years
4.0
67,060
8 times
2.9
34% of GDP
2.4
2.3
1.9
2.0
2.2
0.7
40,000 0.0
17,275
20,000
-0.3
-0.3
8,180
-1.3
-2.0
0
2000
2006
2005
2013
86
90
23
27
33
4 United Kingdom
Canada
Germany
Israel
Brazil
Mexico
Colombia
Australia
China
Peru
0 United Arab Emirates
2012 2013e
341
Emerging Economies
75
44 40
Chile
2011
Latin America
60
Saudi Arabia
2010
(Basis points, average from May 1st to May 22nd, 2013)
68
11
2009
(% of GDP)
80
20
2008
Country Risk2
82
20
2007
Public Debt 100
18
2006
1/ Updated on May 17th, 2013. 2/ Credit Rating by Moody’s. Source: BCRP,MEF, Bloomberg.
10
268
Indonesia (Baa3)
172
Brazil (Baa2)
168
Russia (Baa1)
152
China (Aa3)
148
Mexico (Baa1)
135
Chile (Aa3)
135
Colombia (Baa3)
128
Philippines (Ba1)
125
Peru (Baa2)
123
Peru can grow around its potential: 6.0-6.5% Gross Domestic Product (Annual % change) 10 9
Average Growth 2002-2012 6.4%
8 7 6 5 4 3 2 1 0 2002
2003
2004
2005
2006
2007
2008
F: Forecast Source: BCRP, MEF.
11
2009
2010
2011
2012 2013 F 2014 F 2015 F 2016 F
Ample potential for further economic growth and diversification Exports of Copper 2012
Exports of Wood and Paper 2012
(US$ Billion)
Agricultural Exports 2012
(US$ Billion)
45
(US$ Billion)
10
10
8
8
6
6
4
4
2
2
40 35 30 25 20 15 10 5 0
0
0 Peru
Chile
Peru
Chile
Peru
Brazil
Chile
Tourist Arrivals 2012
Exports of Services 2012
High-technology Exports 20111
(Million of people)
(US$ Billion)
(US$ per capita)
6
60
45 40
5
50 35
4
30
40
25
3
30
20
2
15
20
10
1
10
5 0
0 Peru
Colombia
Chile
Argentina
0 Peru
Chile
Argentina
Brazil
Peru
Chile
Brazil
1 / According to the World Bank, high-technology exports are products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments and electrical machinery. Source: SUNAT, BCRP, ministries of commerce of countries, World Bank.
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Argentina
There are important investment projects that will reach maturity in the short and medium term Mining Las Bambas – Cu (Xstrata Copper) Cerro Verde extension – Cu (Freeport-MacMoran Copper) Toromocho – Cu (Chinalco) Constancia – Cu (Hudbay) Marcona extension – Fe (Shougang)
Region Apurimac Arequipa Junin Cusco Ica
Hydrocarbons Energy security and southern gas pipeline (Called) Block 58 (Petrobras) NGL & gas pipeline extension (TGP) Block 56 & 88 extension (Pluspetrol) Block 57 (Repsol & Petrobras) Block 67 (Perenco & PetroVietman) Block Z1 (BPZ, Pacific Rubiales Energy)
Cusco, Arequipa, Moquegua Cusco Cusco Cusco Junin, Cusco, Ucayali Loreto Tumbes, Piura
Electricity Chaglla Hydroelectric – 406MW (Odebrecht) Cerro del Águila Hydroelectric – 402MW (Inkia Energy) Molloco Hydroelectric – 300MW (Corsan /Engevix/Enex) Cheves Hydroelectric – 168 MW (SN Power) Quitaracsa I Hydroelectric – 112MW (GDF Suez) Ilo Thermoelectric – 569MW (GDF Suez) 220 kV Moyobamba – Iquitos transmission line and associated substations (Called) Infrastructure Metro of Lima & Callao – Section 2 (Called) Vía Parque Rimac (OAS S.R.L.) Muelle Norte port modernization (APM Terminals) Paita port extension (Tertir Terminais/Cosmos/Translei) Longitudinal de la Sierra road – Section 2 (Called) WWTP & Outfall La Chira (Acciona Agua, GYM) IIRSA Centro Road – Section II (Deviandes) Yurimaguas port terminal (Hidalgo e Hidalgo) Source: BCRP, MINEM, MTC, PROINVERSION, OSINERGMIN, Apoyo Consultoria.
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Huanuco Huancavelica Arequipa Lima Ancash Moquegua Loreto, San Martin
Lima Lima Lima Piura Cajamarca, La Libertad Lima Lima, Junin, Pasco Loreto
Sustained high private investment is key to ensure a GDP growth of about 6% per year Private Investment (Average % change )
Total Investment: 2012 (% of GDP) 30 25
24.6
24.4
25
11.6
12
26.7
10
21.2
8 6.2
20
6 15
4 2
10 0 5
-2
-1.6
-4
0 Brazil
Chile
Colombia
Mexico
1982-1991
Peru
2002-2012
Private Investment
GDP
(Annual % change)
(Annual % change ) 7
14 12
1992-2001
6.4
11.6
6 10
5
8 6
4
4 Baseline
2
3
Stress
0
Baseline
Stress
2 Average 2002-2012
t
t+1
t+2
Average 2002-2012
Source: MEF, Apoyo Consultoría, BCRP, SUNAT, INEI.
14
t
t+1
t+2
Strategies to facilitate investment Streamlining procedures and promotion of investment as a national priority
1. Generate results with immediate impact Optimization and development of an adequate regulatory and administrative framework
Package of measures to align regulatory frameworks, simplify administrative procedures, reduce timelines, standarize criteria and define skills.
2. Develop abilities to unlock the execution of investments Create a special team for the monitoring of investment.
Management and Monitoring
15
Effects of initial normative measures: the case of Environmental Impact Assessment (EIA) The measures will double the execution of investment in the same period of time ANA: Environmental management instruments assessed 2013Q1
ANA: Investment of Environmental management instruments assessed 2013Q1
(Number of records)
(US$ million)
US$ 3,307 million
166 projects 56 (34%)
60
110 (66%)
1,694 (51%)
1800
1,613 (49%) 31 20
91
50
1500
40 30
414
633
1200
900
20
600
1148
970
10
300
0 Aprobado Approved
0
Observado Observed
GORE
MEM-AAE
MEM-AAM
MINCETUR
MVCS
PRODUCE
Aprobado Approved MVCS
MINAG
Source: MEF, ANA (National Agency for Water)
16
MINCETUR
Observado Observed MEM-AAM
MEM-AAE
Law 30025 to promote investment in infrastructure Road
Road
Airport
Highw ay of Sol (Trujillo - Chiclay o - Piura -Sullana).
Road Cusco - Quillabamba.
“Capitan FAP Pedro Canga Rodriguez” Airport, Zarumilla, Tumbes.
Road sections multimodal ax is Northern Amazon of “Plan de accion para la integracion de
Road Trujillo - Shiran - Shorey .
“Capitan FAP Guillermo Concha Iberico” Airport, Castilla, Piura.
infraestructura regional sudamericana - IIRSA”.
Road Quinua - San Francisco.
“Capitan FAP Victor Montes” International Airport, Talara, Piura.
Section Nº 1 South Interoceanic Highw ay Corridor, Peru Brazil (San Juan de Marcona -
Road Cajamarca - Celendin - Balzas, Soritor - La Calzada.
“Capitan FAP José Abelardo Quiñones Gonzalez” Airport, Chiclay o, Lambay eque.
Urcos).
Road Pimentel - Chiclay o.
“Capitan FAP Carlos Martinez Pinillos” Airport, Trujillo, La Libertad.
Section Nº 2 South Interoceanic Highw ay Corridor, Peru Brazil (Urcos - Inambari).
Road Lima - Canta - Huay llay - Vicco - Emp. PE-3N (Shelby ).
“May or General FAP Armando Rev oredo Iglesias” Airport, Baños del Inca, Cajamarca.
Ev itamiento Highw ay - Chimbote.
“Comandante FAP German Arias Graziani” Airport, Carhuaz, Ancash.
Road Chongoy ape - Cochabamba.
“Coronel FAP Francisco Secada Vignetta” International Airport, Iquitos city , Loreto.
Road La Tina - La Tina - Cachaquito.
“Cadete FAP Guillermo del Castillo Paredes” Airport, Tarapoto city , San Martin.
Road Quilca - Matarani - Ilo.
“Capitan FAP Dav id Abensur Rengifo” Airport, Pucallpa city , Ucay ali.
Section Nº 4 South Interoceanic Highw ay Corridor, Peru Brazil (Inambari - Azangaro). Section Nº 5 South Interoceanic Highw ay Corridor, Peru Brazil (Ilo - Puno - Juliaca, Matarani - Juliaca- Azangaro). Road IIRSA Centro - Section Nº 2 (Bridge Ricardo Palma- La Oroy a - Huancay o & La Oroy a - Cerro de Pasco). Road section Nuev o Mocupe - Cay alti - Oy otun -Puente Las Delicias. Road section Chancay /Variante Pasamay o - Huaral - Acos.
Road Cañete - Lunahuana, Roncha -Chupaca - Puente Pilcomay o. Road Tarata - Mazocruz - Ilav e. Road Huamachuco - Bridge Pallar – Abra Naranjillo. Ev itamiento Highw ay - Urcos.
Pisco International Airport, Pisco city , Ica. “Inca Manco Capac” International Airport, Juliaca city , Puno. “Alfredo Rodriguez Ballon” International Airport, Arequipa city . “Coronel FAPAlfredo Mendiv il Duarte” Airport, Ay acucho city
Red Vial Nº 4: Section Pativ ilca - Santa - Trujillo & Puerto Salav erry - Empalme PN1N.
Road Imata - Oscollo - Negromay o - San Genaro - Descanso - Sicuani & Negro May o-
Red Vial Nº 5: Section Ancon - Huacho - Pativ ilca, North Pan-American Highw ay .
Ocoruro - Pallpata - Yauri.
Red Vial Nº 6: Section Bridge Pucusana - Cerro Azul - Ica, South Pan-American Highw ay
Road Las Vegas - Tarma.
Longitudinal de la Sierra road: Chiple -Cuterv o - Cochabamba - Chota - Bambamarca-
Road Rio Seco - El Ahorcado - Say an.
Aerodrome of Puerto May o - Pichari.
Hualgay oc - Yanacocha, Cajabamba -Sausacocha, Huamachuco - Shorey - Santiago de
Road Mala - Calango - La Capilla.
Port
Chuco - Pallasca - Cabana - Tauca, Huallanca- Caraz, Huallanca - La Union -
Linea Amarilla.
Paita Port Terminal
Huanuco, Izcuchaca - May occ - Huanta Ay acucho -Andahuay las - Abancay .
Southern Highw ay Project.
San Martin Port Terminal.
Road Huancav elica-Santa Inés-Castrov irrey na - Pampano & Santa Ines-Rumichaca. Road Imperial - Pampas - May occ. Road Huancav elica - Lircay .
“Padre Aldamiz” International Airport, Puerto Maldonado city , Madre de Dios. “Coronel FAP Carlos Ciriani Santa Rosa” International Airport, Tacna city .
New Highw ay Projects, Lima city . Arequipa La Joy a Regional Road, Arequipa. Construction of Trunk Road Interconectora: Miraflores, Alto Selv a Alegre, Yanahuara, Cay ma & Cerro Colorado - Arequipa.
Border Relocation, construction and equipment of the border crossing in Inapari (Peru-Brasil), Madre de Dios. Desaguadero Border Crossing (Peru-Boliv ia).
Longitudinal de la Selv a road “Puente Integracion - San Ignacio - Perico, Juanjui -
Integrated Transport Sy stem SIT, Arequipa.
Campanilla - Pizana - Tocache - Von Humboldt- Puerto Bermudez - Villa Rica - Puente
Rehabilitation and pav ing of the National Route Highw ay Nº PE - 18, Section Oy on -
Reither- Satipo - Mazamari - Puerto Ocopa”.
Yanahuanca - Ambo.
Railway
Tourism
Others
Line 1 & 2 of the Basic Netw ork of the Metro of Lima and Callao.
Gondolas Sy stem of Kuelap.
Fishing complex La Puntilla.
Construction and equipment of the border complex in Tilali-Puerto Acosta. Construction and equipment of border complex in El Alamor. Construction and equipment of border complex in Saramiriza-Loja.
17
Major reforms already in place 1. Tax Reform • To raise the tax burden from 15.5% of GDP in 2011 to 18% of GDP in 2016. 2. Private Pension System Reform • To generate better fund performance, coverage, competition and improved quality of service, in order to lower fees and increase pensions. 3. Capital Markets Reform • To broaden the investor base (small local investors and Peruvians with savings surpluses). 4. Wage Reform for Teachers, Armed Forces, Police Forces, and Civil Service • To reward meritocracy and productivity, establishing a career line, and organizing the payroll. 5. To accelerate infrastructure projects and PPPs.
18
To Sum Up Less favorable international environment: • Slower growth in the U.S., Europe, China and Latin America. • Fall in commodity prices. In an environment of global economic weakness, to grow at 6% is essential to maintain a favorable climate for private investment and to improve Peru’s productivity and competitiveness: • Reducing infrastructure gap. • Substantial improvement of human capital. • Promotion of innovation and technology transfer. • Productive and export diversification. • Administrative simplification: “less red tape”. Copper production is expected to double in the coming years. Peru will remain the fastest growing economy with the lowest inflation rate in the region and will continue to grow at around 6.0% to 6.5% for the following years.
19
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