Boston, MA -- (ReleaseWire) -- 04/30/2014 -- While we expect real GDP growth to level off at around 5.0%, below its recent trend, significant mineral wealth, attractive investment opportunities at the sector level, and a growing consumer story underpin our view that Peru will remain one of the most dynamic economies in Latin America in the coming years. We remain below-consensus for 2014 growth, when we are forecasting 5.2% real economic expansion.
Given our Asia Country Risk team's expectation that Chinese real GDP growth will trend lower in the coming years, as the economy rebalances away from an investment-led growth model to one in which private consumption plays a larger role, we anticipate that Peru will continue to be hit hard through the trade and investment channels due to weaker Chinese demand, lower average metals prices, and more moderate capital expenditure plans by major mining firms. Given these factors, we remain well below consensus on real GDP growth in Peru in the next few years, and we anticipate that these dynamics will precipitate a widening of the country's current account deficit, place downward pressures on the budget balance, and result in a weaker currency.
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Major Forecast Changes
We have adjusted our current account deficit forecasts, due to a moderation in import growth which has progressed more rapidly than we originally anticipated. We are forecasting a current account deficit of 5.1% of GDP in 2014, compared to our original estimate of 5.5%.
Key Risks To Outlook
Given the fact that our sluggish growth outlook for Peruvian exports is based on a number of external factors, including slow growth in China and normalisation of monetary policy in the United States, our forecasts would need to be revised if these developments do not unfold as anticipated.
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