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EXECUTIVE SUMMARY
Over the last several years, economic growth in Peru has
performed at China-type levels, and its expansion has been
Latin America’s most impressive over the last decade. Even
after the change of government to a more left-leaning Ollanta
Humala, in 2011, growth has remained robust.
•  While the global backdrop has not been particularly
favorable during the last couple years, Peru continues to
expand at a 6-7 percent pace, and with the exception of
2009, has achieved 6-10 percent growth for seven of the last
eight years.
•  In contrast to the middle of the last decade, when export
performance drove economic growth, overall economic
activity has been led by domestic demand.
•  Additionally the country is enjoying an investment boom,
with billions of dollars directed into mining, energy and
infrastructure/transportation projects.
•  Economic growth, rising incomes and stable inflation rates
have increased demand for residential housing.
POPULATION: 29.8 million
2012TOTAL GDP:
$200 billion
(global ranking: 49)
GDP PER CAPITA:
$10,719
(based on purchasing power
parity, global ranking: 83)
2012 GDP GROWTH RATE:
6.3%
2012 UNEMPLOYMENT:
5.6%
2012 INFLATION: 2.7%
PEN / USD: 2.72
COUNTRY SNAPSHOT
Peru Economic Update – June 2013
TRENDS + VIEWS
JAMESTOWN LATIN AMERICA
Real Estate Private Equity
www.jamestown-latam.com
Contact:
Bret Rosen – Managing Director, Research
+1 212-652-2141
brosen@jamestown-latam.com
Rio de Janeiro • Bogotá • Atlanta • New York
Lofty GDP growth rates expected to continue in 2013-14
In 2012, Peru’s economy grew by 6.3 percent, and the
Peruvian central bank, the Banco Central de Reserva
del Perú (BCRP), expects similar growth rates in 2013
and 2014. Notably, domestic demand has been the
major driver of economic activity recently, with internal
demand having risen 7.4 percent in 2012. The pace of
export growth has fallen off substantially, however, due
to worsening terms of trade. In fact, in 2012, exports
fell from 2011 levels - although total exports have risen
from USD 27 billion in 2009 to USD 46 billion in 2012.
Meanwhile, as domestic demand surges, imports
continue to rise, and are now double 2009 levels. As a
result, Peru’s trade surplus, which notched 5.3 percent of
GDP in 2011 fell to 2.2
percent for 2012.
Offsetting this weaker
trade performance
is a consumption
and investment
boom in the country.
Investment as a percentage of GDP has risen from 23
percent to 2009 to a projected 28 percent in 2013 - among
the highest levels in Latin America. Public investment
has taken off of late, and according to local consultant
Apoyo Consultoría, is expected to increase by twenty
percent in 1Q13. During the change of government,
public investment slipped, falling 18 percent in 2011, but
is now a main priority of the government, and is forecast
to increase by 15 percent in 2013. As recently as 2006,
public investment accounted for just 3.1 percent of GDP,
but should reach nearly 6 percent of GDP this calendar
year. Meanwhile, private investment has surged.
Announced private sector investments alone across
mining, energy, infrastructure, electricity and industry
are forecast to total approximately USD 30 billion in
2013-14.Total private investment in 2012 surpassed USD
39 billion, double the amount realized in 2007. Private
investment grew by 15 percent last year, and could
expand by double digits again in 2013. As a percentage
of GDP, foreign direct investment (FDI) into Peru is the
second highest in the region behind only Chile.
PEN appreciation likely to continue
The strength of the sol (PEN) has been a major issue
for officials within the Ministry of Finance and Central
Bank. The PEN has been amongst the best performing
currencies in emerging markets over the last half
decade, enjoying steady appreciation. The BCRP has
accommodated this appreciation, but intervenes in
the foreign exchange market to prevent excessive
strengthening or volatility. It has accomplished this via a
strategy of reserve accumulation by purchasing dollars
primarily in the spot market. Central Bank reserves have
surged nearly USD 20 billion since the end of 2011, due
to the currency interventions of the monetary authority.
In fact, reserves as a percentage of GDP are by far the
highest in the region.
The authorities also have moved beyond pure USD
purchases to weaken the PEN. Namely, reserve
requirements on
foreign currency have
been lifted on several
occasions, most recently
in late March.This policy
is designed to reduce
demand for dollar credit
amidst a backdrop
where locals believe the pace of PEN appreciation would
continue leading to faster growth in dollar credit vis-à-
vis USD deposits. Additionally, the authorities have
lifted the limits on foreign investments that the country’s
pension funds can hold, which will increase purchases
of foreign currency. On three occasions this calendar
Peru Economic Update – June 2013
TRENDS + VIEWS
GDP growth is being
driven by domestic
consumption and an
investment boom
The PEN has
been one of the
best performing
currencies in Latin
America
PAGE 2TRENDS + VIEWS JUNE 1, 2013
year, most recently in April, the BCRP increased the limit
by 2 percent of total assets. The limit now stands at 36
percent, and the 6 percent incremental amount could
lead to USD demand totaling over 2 billion dollars.The
Ministry of Finance has also announced its intentions
to prepay several billion in USD obligations. Taking
the aforementioned
measures into
account, the straight
line appreciation
trend on the PEN
appears to have
subsided, with more
two-way volatility now introduced into the currency.
Nonetheless, the steady inflow of FDI combined with
portfolio capital flows primarily into the local currency
fixed income market should keep the PEN at a relatively
strong level.
Authorities and Central Bank earn investor respect
The authorities have managed the country’s fiscal
situation well, even as the markets originally questioned
the intentions of President Humala after he was elected.
The country registered a fiscal surplus of 2.1 percent
GDP for 2012, surpassing the total amortizations of
public debt in marked contrast to most of the developed
world, which has been plagued by vast fiscal problems.
We would expect smaller surpluses in the upcoming
years as the government aims to deploy resources on
social expenditures. Peru country risk as measured by
credit default swap (CDS) spreads or USD bond yields
is amongst the lowest in emerging markets due to the
strong fiscal performance, responsible track record
of this government, and robust central bank reserves.
Local currency bond yields meanwhile are at record
lows; the benchmark 2037 PEN bond yields slightly
below 5 percent. Foreigners have piled into the local
currency bond market: 57 percent of PEN government
bonds are held by non-residents, as opposed to 19
percent in 2009. This also represents a risk, as sudden
outflows from non-residents could occur should global
liquidity conditions and risk tolerance shift abruptly.
Turning to monetary policy, the BCRP has maintained the
benchmark rate at 4.25 percent since May 2011. Inflation
in Peru is volatile, as food items represent a larger share
of the inflation index when compared to other emerging
markets countries. As food prices are more susceptible
to supply shocks, inflation in Peru can vary greatly
depending on weather cycles and other one-off events.
Nonetheless the BCRP has done a commendable job in
taming inflation in Peru. Forecasts for 2013 and beyond
are for inflation to rise by approximately 2.5 percent,
within the BCRP target range of 1-3 percent, but slightly
above the middle of this band. The overall balance of
risks to inflation appears to be neutral according to the
BCRP especially when one considers the subdued global
environment. Meanwhile, credit growth is expanding
at healthy levels, at around 15 percent year-on-year,
and the authorities appear generally comfortable with
this pace of expansion. Credit to individuals, which is
increasing at 18 percent year-on-year, is growing at a
slightly higher level than for the overall financial system.
Policy mix contributes to Peru’s economic success
President Humala enjoys a decent level of popularity
especially when compared to prior Peruvian Presidents
at this juncture in their terms. Ironically his support
has improved the most within the higher economic
strata, which generally rejected his candidacy in 2011.
A March survey by local pollster Datum put Humala’s
support level at 51 percent, although this was down
from 57 percent in the prior month. His popularity
has fallen somewhat in recent months due to worries
about public security and some feelings amongst the
Peru Economic Update – June 2013
TRENDS + VIEWS
PAGE 3TRENDS + VIEWS
Prudent policies have
led to a fiscal surplus
and low inflation
JUNE 1, 2013
lower economic classes that he hasn’t lived up to his
campaign promises. Also weighing on the political
backdrop are the ongoing worries about social unrest
in certain rural areas, which halted the Minas Conga
mining project, the largest FDI planned commitment
in Peruvian history, and rumored plans for first lady
Nadine Heredia to succeed Humala in office. Working
in Humala’s favor however are the country’s strong
economic backdrop, solid business confidence, healthy
job market, and disjointed opposition. Finally, it doesn’t
appear as if Humala will reverse his so-far responsible
economic policy mix, a key point on which investors are
focused.
Defining the middle class opportunity
Peru’smiddle-classhasgrowntremendouslyoverthelast
decade in conjunction with the country’s strong rate of
economic growth. Peruvian officials divide the country’s
class segments from A to E, with Class A representing
the country’s wealthiest and Class E representing the
poorest. Within these categories, Classes B and C have
grown the fastest. According to local consultant Apoyo,
within urban Peru, 2.2 percent percent of the population
are classified in class A, followed by 10.5 percent in B,
28.8 percent in C, 37.5 percent in D and 21.1 percent in
E. Another survey carried out by APEIM for Lima only,
defined that 5.1 percent are considered class A, 17.5
percent as Class B, and so on. Meanwhile, an Ipsos/
Apoyo poll puts 35 percent of Limeños into class C and
notes that this is the country’s fastest growing economic
class. Despite different methodologies used in these
studies, for all of urban Peru, roughly 43.5 percent of
the population is considered to be classes A-B-C. If we
extend this analysis to the rest of the country, 33 percent
are in classes A-B-C.
Meanwhile poverty alleviation has been an achievement
of the current and previous administrations. According
to national statistics institute INEI, the total incidence of
poverty in all of Peru has fallen from 42 percent to 26
percent since 2007. Rural poverty rates have fallen from
74 percent in 2007 to a current level of 56 percent.
Some other data help demonstrate the rise of the middle
class in Peru:
Peru Economic Update – June 2013
TRENDS + VIEWS
PAGE 4TRENDS + VIEWS
2004 2011/12
URBAN POPULATION IN POVERTY 48.2% 18.0%
URBAN POPULATION IN
EXTREME POVERTY
5.7% 1.4%
POPULATION IN PRECARIOUS HOUSING 10.4% 7.4%
HOMES WITH INTERNET 2.1% 16.4%
HOMES WITH AT LEAST ONE CELL PHONE 16.4% 75.2%
HOMES WITH AT LEAST ONE COMPUTER 8.1% 25.4%
HOMES WITH WASHING MACHINE 10.2% 19.9%
UNEMPLOYMENT RATE - URBAN 7.3% 5.1%
APOYA DATA PERU MINISTRY OF FINANCE AEPIM (LIMA ONLY)
INCOME
SEGMENTS
MONTHLY INCOME PER
HOUSEHOLD (SOLES)
% OF
HOUSEHOLDS
% OF
HOUSEHOLDS
% OF
HOUSEHOLDS
% OF
HOUSEHOLDS
2004 2011 2012
A 8,000 2.2% 1.1% 2.2% 5.1%
B 4,200 10.5% 29.8% 2.1% 17.5%
C 2,700 28.8% 29.9% 41.6% 37.1%
D 1,700 37.5% 20.9% 30.0% 30.9%
E 800 21.1% 18.3% 9.8% 9.4%
TABLE 2: ECONOMIC DEVELOPMENT INDICATORS
TABLE 1: HOUSEHOLDS BY INCOME SEGMENT
JUNE 1, 2013
While a monthly income of $1,000 per month might
strike some as impoverished, in Lima and indeed in all
of Peru, this salary would allow a middle-class style of
living. For example the current minimum wage in Peru
is 750 soles per month or just shy of 300 US dollars. In
contrast, minimum wage in New York is $7.25 an hour.
Over a 40 hour work week, this adds up to almost $1,250
or four times the minimum wage in Peru.
Note that cinema tickets in Lima cost five dollars, a
haircut around two dollars, and public transport is
especially inexpensive, with bus prices running one sol,
or around forty cents – prices substantially below those
of more developed economies. Lima’s tren eléctrico
(train service) runs 1.50 soles versus $2.50 for a subway
ride in NewYork.
Mortgage interest rates continue to fall while issuances
increase
Mortgage rates have fallen gradually in Peru, and
should continue to decline even further as inflation
falls. Mortgage growth is running at around 25 percent
on a year-on-year basis, and the pace of mortgages
is growing faster in local currency than in dollars. As
recently as 2009, 58 percent of outstanding mortgages
were denominated in USD as opposed to 44 percent
currently according to the most recent data.
Within the more affluent areas of Lima (La Molina,
Miraflores, San Borja, San Isidro, Surco), prices are up
15 percent year-on-year on a per square meter basis.We
also note that the average price of a home in Lima is
transacting at approximately 16x annual rental income
based on data provided by the BCRP. This multiple is
on the higher end of the historical range and has led to
some worries that prices may be inflated in the higher
end neighborhoods of Lima.
Peru Economic Update – June 2013
TRENDS + VIEWS
PAGE 5TRENDS + VIEWS
0
5,000
10,000
15,000
20,000
25,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
CHART 1: AGGREGATE MORTGAGE DEBT OUTSTANDING
MillionsofNuevoSoles
Source: ASBANC
0
50,000
100,000
150,000
200,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
CHART 2: AGGREGATE NUMBER OF LOANS OUTSTANDINGNumberofMortgages
Source: ASBANC
JUNE 1, 2013
Employment growth expected to remain robust
Urban employment is expected to increase by 4.5
percent in 2013. Meanwhile, we note that from 2007-12
in metro Lima real wages per hour rose by 20 percent.
The unemployment rate in Lima was 6.4 percent in
1Q13 compared to 8.7 percent the year prior. For 1Q13
the average income for an individual rose 3.7 percent,
which is above the rate of inflation, whereas the total
wage mass for last 12 months grew 8.8 percent year on
year.
Businesses’ main complaint relates to a lack of qualified
labor from industry to industry, and according to
Apoyo, one-third of companies surveyed expect to
have problems hiring capable employees in the next
six months. Additionally, three-fourths of companies
surveyed expect to raise wages for their workers over
the same time period.
%oftotalloansdenominatedin$
CHART 3: DOLLAR DENOMINATED CREDIT; PERU
Peru Economic Update – June 2013
TRENDS + VIEWS
JUNE 1, 2013 PAGE 6TRENDS + VIEWS
40%
50%
60%
70%
80%
90%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: ASBANC
Total Credit
Mortgage Loans

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Jtla trends+views peru final_0613

  • 1. EXECUTIVE SUMMARY Over the last several years, economic growth in Peru has performed at China-type levels, and its expansion has been Latin America’s most impressive over the last decade. Even after the change of government to a more left-leaning Ollanta Humala, in 2011, growth has remained robust. •  While the global backdrop has not been particularly favorable during the last couple years, Peru continues to expand at a 6-7 percent pace, and with the exception of 2009, has achieved 6-10 percent growth for seven of the last eight years. •  In contrast to the middle of the last decade, when export performance drove economic growth, overall economic activity has been led by domestic demand. •  Additionally the country is enjoying an investment boom, with billions of dollars directed into mining, energy and infrastructure/transportation projects. •  Economic growth, rising incomes and stable inflation rates have increased demand for residential housing. POPULATION: 29.8 million 2012TOTAL GDP: $200 billion (global ranking: 49) GDP PER CAPITA: $10,719 (based on purchasing power parity, global ranking: 83) 2012 GDP GROWTH RATE: 6.3% 2012 UNEMPLOYMENT: 5.6% 2012 INFLATION: 2.7% PEN / USD: 2.72 COUNTRY SNAPSHOT Peru Economic Update – June 2013 TRENDS + VIEWS JAMESTOWN LATIN AMERICA Real Estate Private Equity www.jamestown-latam.com Contact: Bret Rosen – Managing Director, Research +1 212-652-2141 brosen@jamestown-latam.com Rio de Janeiro • Bogotá • Atlanta • New York
  • 2. Lofty GDP growth rates expected to continue in 2013-14 In 2012, Peru’s economy grew by 6.3 percent, and the Peruvian central bank, the Banco Central de Reserva del Perú (BCRP), expects similar growth rates in 2013 and 2014. Notably, domestic demand has been the major driver of economic activity recently, with internal demand having risen 7.4 percent in 2012. The pace of export growth has fallen off substantially, however, due to worsening terms of trade. In fact, in 2012, exports fell from 2011 levels - although total exports have risen from USD 27 billion in 2009 to USD 46 billion in 2012. Meanwhile, as domestic demand surges, imports continue to rise, and are now double 2009 levels. As a result, Peru’s trade surplus, which notched 5.3 percent of GDP in 2011 fell to 2.2 percent for 2012. Offsetting this weaker trade performance is a consumption and investment boom in the country. Investment as a percentage of GDP has risen from 23 percent to 2009 to a projected 28 percent in 2013 - among the highest levels in Latin America. Public investment has taken off of late, and according to local consultant Apoyo Consultoría, is expected to increase by twenty percent in 1Q13. During the change of government, public investment slipped, falling 18 percent in 2011, but is now a main priority of the government, and is forecast to increase by 15 percent in 2013. As recently as 2006, public investment accounted for just 3.1 percent of GDP, but should reach nearly 6 percent of GDP this calendar year. Meanwhile, private investment has surged. Announced private sector investments alone across mining, energy, infrastructure, electricity and industry are forecast to total approximately USD 30 billion in 2013-14.Total private investment in 2012 surpassed USD 39 billion, double the amount realized in 2007. Private investment grew by 15 percent last year, and could expand by double digits again in 2013. As a percentage of GDP, foreign direct investment (FDI) into Peru is the second highest in the region behind only Chile. PEN appreciation likely to continue The strength of the sol (PEN) has been a major issue for officials within the Ministry of Finance and Central Bank. The PEN has been amongst the best performing currencies in emerging markets over the last half decade, enjoying steady appreciation. The BCRP has accommodated this appreciation, but intervenes in the foreign exchange market to prevent excessive strengthening or volatility. It has accomplished this via a strategy of reserve accumulation by purchasing dollars primarily in the spot market. Central Bank reserves have surged nearly USD 20 billion since the end of 2011, due to the currency interventions of the monetary authority. In fact, reserves as a percentage of GDP are by far the highest in the region. The authorities also have moved beyond pure USD purchases to weaken the PEN. Namely, reserve requirements on foreign currency have been lifted on several occasions, most recently in late March.This policy is designed to reduce demand for dollar credit amidst a backdrop where locals believe the pace of PEN appreciation would continue leading to faster growth in dollar credit vis-à- vis USD deposits. Additionally, the authorities have lifted the limits on foreign investments that the country’s pension funds can hold, which will increase purchases of foreign currency. On three occasions this calendar Peru Economic Update – June 2013 TRENDS + VIEWS GDP growth is being driven by domestic consumption and an investment boom The PEN has been one of the best performing currencies in Latin America PAGE 2TRENDS + VIEWS JUNE 1, 2013
  • 3. year, most recently in April, the BCRP increased the limit by 2 percent of total assets. The limit now stands at 36 percent, and the 6 percent incremental amount could lead to USD demand totaling over 2 billion dollars.The Ministry of Finance has also announced its intentions to prepay several billion in USD obligations. Taking the aforementioned measures into account, the straight line appreciation trend on the PEN appears to have subsided, with more two-way volatility now introduced into the currency. Nonetheless, the steady inflow of FDI combined with portfolio capital flows primarily into the local currency fixed income market should keep the PEN at a relatively strong level. Authorities and Central Bank earn investor respect The authorities have managed the country’s fiscal situation well, even as the markets originally questioned the intentions of President Humala after he was elected. The country registered a fiscal surplus of 2.1 percent GDP for 2012, surpassing the total amortizations of public debt in marked contrast to most of the developed world, which has been plagued by vast fiscal problems. We would expect smaller surpluses in the upcoming years as the government aims to deploy resources on social expenditures. Peru country risk as measured by credit default swap (CDS) spreads or USD bond yields is amongst the lowest in emerging markets due to the strong fiscal performance, responsible track record of this government, and robust central bank reserves. Local currency bond yields meanwhile are at record lows; the benchmark 2037 PEN bond yields slightly below 5 percent. Foreigners have piled into the local currency bond market: 57 percent of PEN government bonds are held by non-residents, as opposed to 19 percent in 2009. This also represents a risk, as sudden outflows from non-residents could occur should global liquidity conditions and risk tolerance shift abruptly. Turning to monetary policy, the BCRP has maintained the benchmark rate at 4.25 percent since May 2011. Inflation in Peru is volatile, as food items represent a larger share of the inflation index when compared to other emerging markets countries. As food prices are more susceptible to supply shocks, inflation in Peru can vary greatly depending on weather cycles and other one-off events. Nonetheless the BCRP has done a commendable job in taming inflation in Peru. Forecasts for 2013 and beyond are for inflation to rise by approximately 2.5 percent, within the BCRP target range of 1-3 percent, but slightly above the middle of this band. The overall balance of risks to inflation appears to be neutral according to the BCRP especially when one considers the subdued global environment. Meanwhile, credit growth is expanding at healthy levels, at around 15 percent year-on-year, and the authorities appear generally comfortable with this pace of expansion. Credit to individuals, which is increasing at 18 percent year-on-year, is growing at a slightly higher level than for the overall financial system. Policy mix contributes to Peru’s economic success President Humala enjoys a decent level of popularity especially when compared to prior Peruvian Presidents at this juncture in their terms. Ironically his support has improved the most within the higher economic strata, which generally rejected his candidacy in 2011. A March survey by local pollster Datum put Humala’s support level at 51 percent, although this was down from 57 percent in the prior month. His popularity has fallen somewhat in recent months due to worries about public security and some feelings amongst the Peru Economic Update – June 2013 TRENDS + VIEWS PAGE 3TRENDS + VIEWS Prudent policies have led to a fiscal surplus and low inflation JUNE 1, 2013
  • 4. lower economic classes that he hasn’t lived up to his campaign promises. Also weighing on the political backdrop are the ongoing worries about social unrest in certain rural areas, which halted the Minas Conga mining project, the largest FDI planned commitment in Peruvian history, and rumored plans for first lady Nadine Heredia to succeed Humala in office. Working in Humala’s favor however are the country’s strong economic backdrop, solid business confidence, healthy job market, and disjointed opposition. Finally, it doesn’t appear as if Humala will reverse his so-far responsible economic policy mix, a key point on which investors are focused. Defining the middle class opportunity Peru’smiddle-classhasgrowntremendouslyoverthelast decade in conjunction with the country’s strong rate of economic growth. Peruvian officials divide the country’s class segments from A to E, with Class A representing the country’s wealthiest and Class E representing the poorest. Within these categories, Classes B and C have grown the fastest. According to local consultant Apoyo, within urban Peru, 2.2 percent percent of the population are classified in class A, followed by 10.5 percent in B, 28.8 percent in C, 37.5 percent in D and 21.1 percent in E. Another survey carried out by APEIM for Lima only, defined that 5.1 percent are considered class A, 17.5 percent as Class B, and so on. Meanwhile, an Ipsos/ Apoyo poll puts 35 percent of Limeños into class C and notes that this is the country’s fastest growing economic class. Despite different methodologies used in these studies, for all of urban Peru, roughly 43.5 percent of the population is considered to be classes A-B-C. If we extend this analysis to the rest of the country, 33 percent are in classes A-B-C. Meanwhile poverty alleviation has been an achievement of the current and previous administrations. According to national statistics institute INEI, the total incidence of poverty in all of Peru has fallen from 42 percent to 26 percent since 2007. Rural poverty rates have fallen from 74 percent in 2007 to a current level of 56 percent. Some other data help demonstrate the rise of the middle class in Peru: Peru Economic Update – June 2013 TRENDS + VIEWS PAGE 4TRENDS + VIEWS 2004 2011/12 URBAN POPULATION IN POVERTY 48.2% 18.0% URBAN POPULATION IN EXTREME POVERTY 5.7% 1.4% POPULATION IN PRECARIOUS HOUSING 10.4% 7.4% HOMES WITH INTERNET 2.1% 16.4% HOMES WITH AT LEAST ONE CELL PHONE 16.4% 75.2% HOMES WITH AT LEAST ONE COMPUTER 8.1% 25.4% HOMES WITH WASHING MACHINE 10.2% 19.9% UNEMPLOYMENT RATE - URBAN 7.3% 5.1% APOYA DATA PERU MINISTRY OF FINANCE AEPIM (LIMA ONLY) INCOME SEGMENTS MONTHLY INCOME PER HOUSEHOLD (SOLES) % OF HOUSEHOLDS % OF HOUSEHOLDS % OF HOUSEHOLDS % OF HOUSEHOLDS 2004 2011 2012 A 8,000 2.2% 1.1% 2.2% 5.1% B 4,200 10.5% 29.8% 2.1% 17.5% C 2,700 28.8% 29.9% 41.6% 37.1% D 1,700 37.5% 20.9% 30.0% 30.9% E 800 21.1% 18.3% 9.8% 9.4% TABLE 2: ECONOMIC DEVELOPMENT INDICATORS TABLE 1: HOUSEHOLDS BY INCOME SEGMENT JUNE 1, 2013
  • 5. While a monthly income of $1,000 per month might strike some as impoverished, in Lima and indeed in all of Peru, this salary would allow a middle-class style of living. For example the current minimum wage in Peru is 750 soles per month or just shy of 300 US dollars. In contrast, minimum wage in New York is $7.25 an hour. Over a 40 hour work week, this adds up to almost $1,250 or four times the minimum wage in Peru. Note that cinema tickets in Lima cost five dollars, a haircut around two dollars, and public transport is especially inexpensive, with bus prices running one sol, or around forty cents – prices substantially below those of more developed economies. Lima’s tren eléctrico (train service) runs 1.50 soles versus $2.50 for a subway ride in NewYork. Mortgage interest rates continue to fall while issuances increase Mortgage rates have fallen gradually in Peru, and should continue to decline even further as inflation falls. Mortgage growth is running at around 25 percent on a year-on-year basis, and the pace of mortgages is growing faster in local currency than in dollars. As recently as 2009, 58 percent of outstanding mortgages were denominated in USD as opposed to 44 percent currently according to the most recent data. Within the more affluent areas of Lima (La Molina, Miraflores, San Borja, San Isidro, Surco), prices are up 15 percent year-on-year on a per square meter basis.We also note that the average price of a home in Lima is transacting at approximately 16x annual rental income based on data provided by the BCRP. This multiple is on the higher end of the historical range and has led to some worries that prices may be inflated in the higher end neighborhoods of Lima. Peru Economic Update – June 2013 TRENDS + VIEWS PAGE 5TRENDS + VIEWS 0 5,000 10,000 15,000 20,000 25,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 CHART 1: AGGREGATE MORTGAGE DEBT OUTSTANDING MillionsofNuevoSoles Source: ASBANC 0 50,000 100,000 150,000 200,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 CHART 2: AGGREGATE NUMBER OF LOANS OUTSTANDINGNumberofMortgages Source: ASBANC JUNE 1, 2013
  • 6. Employment growth expected to remain robust Urban employment is expected to increase by 4.5 percent in 2013. Meanwhile, we note that from 2007-12 in metro Lima real wages per hour rose by 20 percent. The unemployment rate in Lima was 6.4 percent in 1Q13 compared to 8.7 percent the year prior. For 1Q13 the average income for an individual rose 3.7 percent, which is above the rate of inflation, whereas the total wage mass for last 12 months grew 8.8 percent year on year. Businesses’ main complaint relates to a lack of qualified labor from industry to industry, and according to Apoyo, one-third of companies surveyed expect to have problems hiring capable employees in the next six months. Additionally, three-fourths of companies surveyed expect to raise wages for their workers over the same time period. %oftotalloansdenominatedin$ CHART 3: DOLLAR DENOMINATED CREDIT; PERU Peru Economic Update – June 2013 TRENDS + VIEWS JUNE 1, 2013 PAGE 6TRENDS + VIEWS 40% 50% 60% 70% 80% 90% 100% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: ASBANC Total Credit Mortgage Loans