Ministry of Economy and Finance

PERU: ECONOMIC & SOCIAL

OUTLOOK

October 2010
Index

1. Economic Outlook

2. Social Progress

3. Challenges and prospects

2
ECONOMIC OUTLOOK
• Peru overcame the global financial crisis
relatively unharmed, maintaining GDP growth,
employment generation and poverty reduction

• Key factors behind 2010 rebound:

• Confidence recovery
• Effective countercyclical monetary and fiscal policy
• High commodity prices
• Sound balance sheets: Government, banks, firms and
households

4
 Peru: Better performance than its peers

Latin-American GDP
(Seasonally adjusted index Q4-07=100)

115 Colom bia

Chile
Brazil
110
Peru
Mexico
105

100

95

90
Q4 07 Q2 08 Q4 08 Q2 09 Q4 09 Q2 10

5
Source: Central Banks and National Bureaus of Statistics
 Growth back to pre crisis levels

Quarterly GDP Growth Seasonally Adjusted GDP and

(Annual % change) Domestic Demand
(Index 1994 = 100)
12 11.7 218
10.9
10.3 10.1
10 209

8
6.5 200
6.1
6
191
4 3.4
1.9 182
2

0 173 Domestic Demand

GDP
-0.6
-2 -1.2 164
Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Jul-10
J-07 M-07 S-07 J-08 M-08 S-08 J-09 M-09 S-09 J-10 M-10

6
Source: National Bureau of Statistics, Central Bank of Peru.
 Private investment returns as the main driver
of growth
Private Investment
(Annual % change)
45
34.1
35
28.1
24.6
25 20.1 21.3

15 11.5

5 1.8

-5

-15
-16.7
-25 -20.8 -22.0
Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10

Business confidence Capital goods imports

(%) ($ million, 3M moving average)
70 40
950
60 30
900
50 20 850
40 10 800

30 0 750

20 -10 700
650
10 -20
600
0 -30
550
Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11
Conf idence 500
Private Investment (Annual % change, Right Axis) J-08 M-08 S-08 J-09 M-09 S-09 J-10 Jul-10
M-10

1/ Percentage of entrepreneurs who plan to accelerate their investment projects in the next 6 months. 7
Source : APOYO,Central Bank of Peru.
 Private consumption and employment resume
growth
Urban Peru: Formal Employment Regarding your employees, what measures
(Annual % change) will your company take in the next 6 months?
(%)
80 Jul-09
12 Urban Peru
68 70
70 Sep-09
10 M. Lima
Dec-09
Urban Rest 60
Mar-10
8
50 Jun-10
6 Sep-10
40
30
4 30
21
2 20
9
0 10
2
-2 0
Jul-10
J-08 A-08 J-08 O-08 J-09 A-09 J-09 O-09 J-10 A-10 Incorporate Maintain Reduce

Consumer goods imports New vehicles sales

(Annual % change) (Thousand of units, 3M moving average)
60 11

50 10
40
9
30

20 8

10
7
0
6
-10

-20 5
J-08 M-08 S-08 J-09 M-09 S-09 J-10 Jul-10
M-10 J-08 M-08 S-08 J-09 M-09 S-09 J-10 M-10
Jul-10
8
Source: ARAPER, SUNAT, Ministry of Labor.
 Countercyclical fiscal policy

Overall Balance of the Non-Financial

Public Sector
(% of GDP)
4

-1

-2
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

9
Source: Ministry of Economy and Finance.
 Favorable financial indicators
Latin America: Public Debt 2009 Participation of Debt Service 1/
70
63.5 (% of GDP) 27 26.3 (% of Public Budget)
60
24
50 Median Baa3 21
41.2 countries: 38.7 18.6
40
18
28.1 26.6
30 15
12.8
20 12 11.2

10 6.8
9

0 6
Brazil Colombia Mexico Peru Chile 2005 2007 2009 2011
(Baa3) (Ba1) (Baa1) (Baa3) (A1)

2009 Foreign Exchange Reserves

30 (% of GDP)
26.1
25

20
15.7 15.5
15
11.3 11.1
10

0
1/. Figure for 2011 corresponds to preliminary data. Peru Brazil Chile Mexico Colombia
10
Source: Ministry of Economy and Finance.
 2010 GDP Forecast was upwardly revised

2010 Growth Forecasts

Analyst’s Consensus
(Annual % change)
7.5 7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
J-09 A-09 J-09 O-09 J-10 A-10 Aug
J-10-10

• Domestic Demand will grow around 10% due to the strong recovery of private
consumption and investment.

11
Source: Ministry of Economy and Finance, Central Reserve Bank of Peru.
 Investment as % of GDP reaching the highest
level in 30 years

Public and Private Investment

(% GDP)
30
Public Investment
Private Investment
26

22

18

14

10
88-92 93-97 98-02 03-07 2008 2009 2010 2011 2012 2013

Average

Source: Central Bank Of Peru, Ministry of Economy and Finance. 12

 Peru in the select group of emerging countries
growing at least 6% during 2010-2013

World GDP 2010-2013

(Average annual % change)

Source: IMF-WEO Abril 2010 13

SOCIAL PROGRESS
 GDP per capita: Upward trend since 1992

Average GDP per capita 1950-2009

(1994 Nuevos Soles)

6,500

6,000

5,500

5,000

4,500

4,000

3,500
3 years moving average
3,000 5 years moving average
2,500
1950 1957 1964 1971 1978 1985 1992 1999 2009
2006

15
Source: BCRP
 Sustained reduction of poverty and inequality
National Poverty Rate Inequality
(% of population) (Gini Index)
60 0.56
0.54
54.8 0.54
55 54.3
52.6 52.0
51.6 0.52
50
46.4 48.7
48.6 0.50
46.1
45 44.5
0.48 0.47
40 39.3 0.46
36.2
35
0.44
34.8
30 0.42
1997 1999 2001 2003 2005 2007 2009 2003 2009

Inequality in America 2003-2008

(Gini Index)
0.60

0.55

0.50

0.45

0.40
Costa Rica

Mexico

Bolivia
Chile

Brazil
Peru

Dom. Republic
El Salvador

Colombia
Ecuador

Latin America

Panama

Nicaragua
Uruguay

Argentina

Guatemala
Honduras
Paraguay

Source: Bureau of National Statistics,

16
Economic Commission for Latin
American and the Caribbean.
 Middle Class Boost: sectors D and E fell 11 pp.

Household Structure by Socio Economic Levels1

2.7 5.2

14.1
17.7

28.7
33.1

35.1
30.2

19.4 13.8

2004 2010

1/ Metropolitan Lima 17
Source: Apoyo.
 Pro-poor and Decentralized Growth

Average Monthly Income by Household

(Current Nuevos Soles)

By Quintile By Region

Quintile 5 18% M. Lima 19%

Quintile 4 57%
National 38%

National
38%
Coast 45%
Quintile 3 58%
Jungle 84%
Quintile 2 67% 2009 2009
2003 Mountains 61% 2003
Quintile 1 84%

0 1,000 2,000 3,000 4,000 5,000 6,000 0 1,000 2,000 3,000 4,000 5,000

18
Source: National Bureau of Statistics, Ministry of Labor.
 Decentralized Employment Generation

Formal Employment in Companies of 10 or

more Workers by Main Cities
(Cumulative % change Jan.- May. 2010/2006)
Huancayo
Puno
Arequipa Lima: Economically Active Population
Piura (EAP)1/ by level
Trujillo (% of EAP)
Tarapoto
Paita 60 Adequate employment

Tacna Underemployment
55
Cusco 50.2
Chiclayo 50
Huaraz
Ica 45
Chincha
Talara 40 42.4
National
Pucallpa
Pisco Average: 25% 35
Iquitos
Cajamarca 30
Sullana jan-mar03 sep-nov04 may-jul06 jan-mar08 jun-aug10
set-nov09
Chimbote

-25 -10 5 20 35 50

1/ Includes employment and unemployment.

Source: National Bureau of Statistics, Ministry of Labor. 19
Strong growth of markets outside Lima

2000 2010

20
 Expansion of micro-financial institutions

2001 2010 1/

N Offices
Banks 1,467
MFI 1,156
N Offices
Banks 822
MFI 250

Poverty Level
1
2
Bank Offices 3
MFI Offices 4
5

1/. Updated to July 2010

Source: SBS / INEI 21
CHALLENGES & PROSPECTS
 Short term priorities

• Economic policy continuity

• Sustain high rates of economic growth
• Continue with poverty reduction
• Enhance competitiveness
• Maintain a prudent fiscal policy framework and
consolidate macro prudential framework
• Manage adequately capital inflows, mitigating
exchange rate volatility
• Ensure a smooth democratic political transition
23
Peru’s prospects are positive due,
mainly, to policy continuity during the
past two decades and favorable
external conditions. The main
challenge going forward is to sustain
high growth with social inclusion

24
 Ministry of Economy and Finance

PERU: ECONOMIC & SOCIAL

OUTLOOK

October 2010