May 12, 2017 / 6:15 PM / a year ago

UPDATE 2-Peru sees March growth despite floods

(Adds Economy Ministry growth expectation, results of Reuters poll in paragraphs 2-3)

LIMA, May 12 (Reuters) - Peru’s economic growth in March will be “quite low” but is unlikely to be negative, after growing at the weakest pace in more than two years in February, central bank chief economist Adrian Armas told reporters on a conference call on Friday.

The government is expected to publish March economic activity data on Monday. In a statement Friday afternoon, the Economy Ministry said the economy likely grew around 0.5 percent year-over-year in March, higher than forecasts in “unofficial surveys.”

A Reuters poll of nine analysts on Thursday showed median expectations for a 0.5 percent contraction in March, which would be the first monthly decline in more than seven years.

The Andean country’s economy decelerated in recent months due to devastating floods in the northern region, linked to an unexpected coastal El Nino phenomenon. The economy grew 0.74 percent in February from the same month a year earlier, the weakest pace since late 2014.

Armas added that inflation was likely to re-enter the monetary authority’s target range of 1 to 3 percent in the third quarter of this year, and that inflation was likely to be negative for a second straight month in May.

Supply shocks related to the floods and mudslides, which left more than a hundred people dead and destroyed thousands of miles of highways, unleashed inflation of 0.32 percent in February and 1.3 percent in March, the biggest monthly rise in nearly two decades.

“That is obviously atypical in a low-inflation economy like Peru’s and has to due with an extraordinary phenomenon,” Armas said.

Consumer prices fell 0.26 percent in April as food supplies recovered from floods, and Armas said a similar pattern was emerging in May. April’s inflation figure brought the annualized 2017 rate to 3.69 percent, down from 3.97 percent in March.

He added that growth would later pick up due to higher public works spending linked to flood relief, and higher prices for Peru’s main exports. Peru, the world’s No. 2 copper producer, is largely dependent on mining.

On Thursday, the central bank cut its benchmark interest rate for the first time in more than two years, noting that growth had decelerated and the economy was performing “below its potential.”

Prime Minister Fernando Zavala praised that move on Friday, saying it would boost activity. Peru expects 3 percent growth this year after growing 3.9 percent in 2017, one of the highest rates in Latin America. (Reporting by Marco Aquino and Teresa Cespedes; Writing by Luc Cohen; Editing by Chris Reese and Cynthia Osterman)

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