(Adds quotes from central bank chief and finance minister, central bank forecasts and context)
LIMA, Dec 18 (Reuters) - Peru’s central bank chief said on Friday that stalled public investments in the world’s third-biggest copper producer are dragging down domestic demand and that mining is now driving growth as non-primary sectors slow.
The central bank cut its 2015 economic growth forecast to 2.9 percent from 3.1 percent in September, largely because of its more pessimistic view of government spending, bank president Julio Velarde said.
“We’ve adjusted consumption a bit as well, but the most important thing is the drop in public investment,” Velarde said at a presentation of the bank’s quarterly inflation report.
Surging copper output in recent months, thanks to new mines, has boosted growth and helped offset slumping metal prices. The trend is expected to continue next year when MMG Ltd’s $7.4 billion Las Bambas project starts operations.
But non-primary sectors have been lagging, Velarde said, and will likely grow by just 2.1 percent this year after expanding 3.6 percent in 2014. Primary sectors, mainly mining and fishing, should surge 5.6 percent this year following last year’s 2.1 percent contraction.
Public investments have been slipping since late 2014, when local projects stalled during regional elections and subsequent government transitions, Velarde said.
Provincial governments tasked with executing part of the national budget in Peru often struggle to disburse funds. Spending has lagged even more than usual this year after corruption inquiries landed several local leaders in prison.
The central bank now expects public investments to drop 11.2 percent this year, instead of 2 percent as forecast in September. In 2014, public investments slipped 2 percent. Next year they should grow by 10.9 percent.
The lack of local public works has hit construction activity, now set to shrink by 6.5 percent in 2015, the sector’s first contraction since 2001, according to the bank.
Finance Minister Alonso Segura said on Monday that he expects public investments by municipal and provincial governments to recover early next year.
“Investments by local governments are already falling less, though they’re still falling,” Segura said. The finance ministry this year deployed technicians to assist mayors and other leaders boost their spending capacity.
The central bank trimmed its view of the 2015 fiscal deficit to 2.1 percent of gross domestic product from 2.2 percent previously, but now sees a larger gap next year, 2.9 percent instead of 2.7 percent.
Velarde added that he does not expect the sol currency to depreciate in 2016 as much as it has in 2015. The sol has weakened by about 13 percent against the dollar so far this year. (Reporting By Teresa Cespedes; Editing by Chris Reese and Meredith Mazzilli)