Peru is a rapidly developing economy of more than 30 million people. In 2012, its GDP was approximately US$200 billion, making it the 50th largest economy in the world and seventh largest in Latin America. This this short report considers the outlook for the economy, including the expectations of 200 businesses interviewed in Peru, and more than 12,500 globally, over the past 12 months.
2. Focus on: Peru
Introduction
200
business
interviews
Peru is a rapidly developing economy of more than
30 million people. In 2012, its GDP was approximately
US$200 billion, making it the 50th largest economy
in the world and seventh largest in Latin America.
Drawing on data sources such as the Grant Thornton
International Business Report (IBR), the Economist
Intelligence Unit (EIU) and the International Monetary
Fund (IMF), this short report considers the outlook
for the economy, including the expectations of 200
businesses interviewed in Peru, and more than
12,500 globally, over the past 12 months.
José Luis Sarrio
Grant Thornton Peru
Partner and International Business Centre director
T +511 615 6868
E joseluis.sarrio@pe.gt.com
W www.grantthornton.com.pe
US$200bn
gross domestic product
30 million inhabitants
Focus on: Peru 2
3. Focus on: Peru
Economy
Economy
expanded by
The Peruvian economy has doubled in size since the turn of the century,
fuelled by demand from China for its raw materials, with growth
averaging over 6% per annum in the lead-up to the global financial
crisis. As China rebalances away from investment towards consumption,
19%
Peru’s economy is set to slow although growth rates are expected to
remain robust at more than 5% per annum. Gold accounts for 38%
17%
44%
of exports while copper (7%), zinc (4%), lead (4%) and iron (2%) are
also important. The United States and China are key trading partners.
in Q3-2013
19%
16%
17%
44%
44%
15%
8%
5%
5.1%
Export destinations
6%
5%
11%
6%
5%
8%
16%
United States
China
Switzerland
44%
Canada
Japan
Other
15%
11%
5%
9%
9%
Key indicators
• the economy expanded by 5.1% in Q3,
up from 3.9% in Q2 and level with the
Q1 result
• the economy recorded a small trade
surplus of US$4m in September, but
the deficit for the first nine months of
the year stands at US$932m, compared
with a surplus of US$3.6bn for the
same period in 2012
• exports declined by 9.4% year-on
year-in the first three quarters of 2013
to US$30.95bn with both volumes and
prices of key commodities sliding
7
• total imports grew by 4.2% year on
year over the same period to total
US$31.89bn, led by growth of 8.9%
in consumer goods driven from Lima
19%
where spending remains robust
19%
• the headline inflation remains
fractionally above the 1-3% target 17%
44%
range but the BCRP reduced its
17%
44%
benchmark interest rate to 4%
8%
in November.
8% 6%
5%
5%
6%
7
Import originations
6
6
16%
16%
44%
44%
5
4
15%
15%
3
11%
5
China
United States
Brazil
Chile
Ecuador
Other
4
3
2
5% 9%
11%
2
5% 9%
Source: Observatory of Economic Complexity (2013)
7
1
7
6
0
6
2013
2014
2015
5
1
0
2013
2016
2017
2014
Focus on: Peru 3
2018
20
4. %
5%
Focus on: Peru
16%
17%
44%
Forecast GDP growth and inflation (%)
7
5%
9%
6
16%
15%
7
6
5
4
3
2
4
11%
5
1
The business operating environment
remains friendly with Peru second in Latin
America to Chile, and 24th overall, in the
Global Dynamism Index 2013. Public
finances are robust, supported in October
by the passage of a fiscal responsibility law
and strong reserves should help smooth
out any exchange rate volatility.
11%
9%
0
2013
3
2
2014
5.3%
forecast growth
2013
Source: EIU (2013)
2014
2015
2016
2017
2018
Real GDP growth
Consumer price inflation
2016
in 2013
1
0
2015
Privates consumption growth is forecast at
5.3% in the short to medium-term,
supported by relatively high employment
and wage growth in Lima. Gross fixed
investment is expected to expand by 10.0%
in 2013, slowing slightly to 8.5% in 2014.
Exports are likely to receive a boost
from improving external conditions and a
number of large mining-sector projects
that are due to come on stream in 2014.
Export growth of just 0.5% in 2013 is
expected to accelerate to 6.0% in 2014,
6.4% in 2015 and 8.0% in 2016.
Despite significant pressure from the left,
the government is likely to maintain a
pragmatic and centrist policy stance which
should ease fears among the private sector
over a radical change of direction. There is
also a potential US$15bn portfolio of large
infrastructure projects due start at the end
of 2013 that should boost both private and
public investment.
15%
44%
The economy is expected to expand by 5.3% in 2013, down from 6.3% in
2012 due to a significant decline in exports. However, growth is forecast
8%
to accelerate to 6.0% in 2014 and 2015 as external conditions improve,
6%
5%
5%
domestic demand remains robust, private investment picks up and
exports rebound.
17%
44%
8%
Economic outlook
19%
6%
19%
6.0%
forecast growth
2017
in 2014-15
2018
Focus on: Peru 4
5. 44%
Focus on: Peru
44%
5%
6%
Investment in plant & machinery remains elevated, pointing to expansion of the
economy’s long-terms growth potential. Net 59% of businesses expect to invest over
the next 12 months, slightly down on the 2012 average (62%) but ahead of Chile (50%)
and the Latin America average (47%). Expectations for R&D are also strong: net 47%
expect to increase activity in this area, compared to 37% across Latin America.
19%
17%
17%
8%
9%
5%
8%
Peruvian business confidence slipped to net 74% in Q3, down from 98% at the start
of the year. Business leaders remain the most optimistic in the region, ahead of Chile
(52%) as the Latin America average slipped to 38% in Q3.
Declining optimism in the health of the overall economy is feeding through to
15%
business growth prospects. On average, net 76% of Peruvian businesses expect
revenues to climb over the next 12 months, down from 78% in 2012. However,
expectations are above the Latin America average of 69%. Profitability expectations
11%
have also declined from last year, with net 66% expecting an increase in 2013 compared
with 72% in 2012.
16%
5%
19%
6%
Business growth prospects
44%
44%
5%
9%
are planning
plant and
5%
Profits
70
2013
60
50
Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13
expect
Investment
revenues
Peru
Latin America
to rise
47
R&D
47
2015
Source: Grant Thornton IBR 2013
2014
30
machinery
76%
66
52
59
40
16%
7
6
5
4
3
2
1
0
69
15%
11%
76
80
to invest in
9%
16%
15%
11%
7
6
5
4
3
2
1
0
90
Net percentage of businesses expecting an increase
(next 12 months)
Revenue
Net percentage of businesses optimistic for the economic outlook (next 12 months)
100
59%
37
Source: Grant Thornton IBR 2013
Peru
Latin America
2016
Focus on: Peru 5
201
6. Focus on: Peru
Business growth constraints
Business leaders in Peru feel empowered to grow their operations in
comparison with peers across the region. A lack of skilled workers is the
most pressing growth constraint in Peru (see next page) but at 24% this is
well below the Latin America average (32%), rising to 40% in Brazil.
Bureaucracy, in the form of regulations
and red tape, is cited by a fifth of business
leaders (20%) in Peru, level with Chile,
but under half the Latin America average
(41%) – which is driven up by the
comparative struggles of peers in
Argentina (45%) and Brazil (52%).
A shortage of finance is an issue for
18% of businesses in Peru, compared
with 24% across the region with peers in
Argentina (50%), where various capital
and foreign exchange controls are in
place, suffering most in this regard.
Infrastructure concerns are low on a
regional comparison but the proportion
citing poor quality transport options as a
constraint on growth is higher than the
global average (14%). Just one in ten cite
a lack of demand, compared to one in
five regionally.
Percentage of businesses citing factor as a constraint on growth
41
20
Regulations & red tape
18
24
Shortage of finance
15
bureaucracy
constraining
growth
plans
20
ICT infrastructure
business
24
Source: Grant Thornton IBR 2013
32
Lack of skilled workers
24
18
Transport infrastructure
11
21
Shortage of orders
Peru
Latin America
a lack of
talent is a
challenge
Focus on: Peru 6
7. 17%
44%
44%
Focus on: Peru
15%
8%
5%
11%
6%
5%
9%
The labour market
Without the right people to drive a vision forward, an entrepreneur
cannot achieve scalability in his or her businesses. The best people not
only increase productivity, but can also save a business time and money
and dynamic companies around the world go to great lengths to attract
such workers. It is a concern therefore that a lack of skilled workers
emerges as the key constraint on business growth prospects faced by
business leaders in Peru (see previous page).
While this challenge is being faced by just a
quarter of local businesses, compared with
closer to a third in Latin America and across
the world, upskilling the labour force is key
to Peru’s opportunity to benefit fully from
the its demographic transition – a one-off
boost to growth as the proportion of people
of working age rises (and peaks) relative to
the proportion of dependents (those too
young or old to work). The transition has
already transformed the age structure of
the Peru’s population, with the working
age share of the population rising by 5.7
percentage points in the decade to 2011.
However, the UN estimates that the
dependency ratio will bottom out in around
2030, after which point the proportion of
people of working age (15-64) will begin
shrinking relative to the proportion of the
population (0-14 and 65+) they have to
provide for, potentially weighing on Peru’s
growth trajectory.
The good news as Peru looks to put these
young hands to work is that businesses are
hiring: net 49% of local businesses hired
workers over the past 12 months, well
above the Latin America average (31%).
This has helped the unemployment rate,
which average 8.4% in previous decade,
to fall to 5.8%. Hiring plans also remain
robust: net 65% of businesses plan to hire
workers over the next 12 months, well
above the Latin America average of 43%.
And Peru also ranks tenth globally for
the dynamism of its labour force according
to the GDI 2013, driven by labour
productivity growth of 3.7% in 2012.
Working age share of total population (%)
70%
65%
60%
55%
50%
1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070
Source: UN Population Division (2013)
Net percentage of businesses reporting/expecting increased hiring
65
49
dependency
43
ratios to
31
2030
Past 12 months
rise from
Source: Grant Thornton IBR 2013
Next 12 months
Peru
Latin America
Focus on: Peru 7