President Boluarte under fire; real GDP to accelerate in Q2; BCRP’s easing cycle nears its end
We cover three topics in this report. First, we discuss the likelihood of Congress impeaching President Dina Boluarte. Then, we evaluate Peru’s economic performance, suggesting that real GDP remained stagnant throughout Q1 2024. We expect a rebound in Q2 2024, on the back of fiscal stimulus, and the distribution of mandatory savings. Finally, we argue that the monetary easing cycle of the Banco Central de la República del Perú is nearing its end.
Last week, 26 left-wing members of Congress submitted yet another impeachment motion against Boluarte, although it was blocked by the congressional right-wing group. We have become more pessimistic about Boluarte’s prospects, and now believe there is a 60% probability that she will be impeached in July 2025.
The Constitution mandates that, should the president resign during the first four years of his or her term, general elections must take place. But if the president resigns in the final year the term, the speaker of Congress takes over as acting president, until the end of that term. Since members of Congress are naturally keen to complete their own five-year terms, political parties may opt to approve the motion to impeach during July 2025, when the president will not have the option of shutting down Congress. Moreover, impeachment may allow political parties to distance themselves from the Boluarte government and its scandals, and prepare for the 2026 presidential and congressional elections.
Stalled economic recovery was the main message from the national statistical institute’s Q1 2024 real GDP report, published in mid-May. Against this backdrop, we have decided to keep our forecasts unchanged. We continue to expect real GDP to advance 2.5% in 2024, 3% in each of 2025 and 2026 and 3.1% in 2027. Compared with the consensus forecast from the Central Bank, we are bearish in the near term: the consensus forecasts real GDP advancing by 2.7% in 2027. In the longer term, we are (slightly) more bullish, with consensus forecasts 2.9% for 2025 and (like us) 3% in 2026.
The BCRP Board cut 25 bps at its May 9th meeting, bringing its policy rate to 5.75%, as expected both by us and by market consensus. Although we forecast that the Board will cut another 25 bp in June, we believe we are coming to the end of the easing cycle, assuming the Federal Reserve sustains its “high-for-long” policy.
We don’t rule out a policy pause in July, but expect another two rate cuts subsequently, on the back of positive inflation data. We keep our policy rate forecast of 5% at yearend.
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