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April rebound quashes slowdown fears for Peru, says Velarde

Jun 5, 2013

Brandishing fresh April growth numbers, Peru's central bank governor sought Wednesday to allay fears of an economic slowdown.

Peru's central bank governor sought Wednesday to allay fears of a slowdown with fresh data showing an economic rebound in April.

Speaking at LatinFinance's Andean Forum, Julio Velarde said the economy grew by 7.4% in April – the fastest monthly expansion this year.

He said the economy was on track to expand by 6.5% in 2013, adding that the numbers were evidence of solid demand for the country's exports.

The news will come as a relief to investors and policymakers anxious at a paltry 4.8% expansion in the first quarter.

Velarde said apparently weak first quarter numbers compared to a year earlier were due in part to fewer work days in the first three months of the year – a fact that meant the economy in fact expanded by 6.2% in the period.

His comments came a day after finance minister Luis Miguel Castilla told LatinFinance's Andean Forum the government would press ahead with measures to prevent the economy from slumping in the face of headwinds. The finance ministry has forecast growth between 6% and 6.3% this year.

Major role for mining

   Julio Velarde, Peruvian Central Bank Governor  

Velarde said that investment as a percentage of GDP would be close to 30% by 2016 and that the mining and oil and gas sectors, which are crucial to the country's long-term growth, would play a major role in the coming years. The minerals sector was likely to expand by 11.3% until 2016, he said.

President Ollanta Humala's administration expects mining investment to top $50 billion by the end of the decade, while energy investment will be above $20 billion.

A number of major projects – including Glencore Xstrata's Las Bambas, Chinalco's Toromocho and the expansion of Freeport McMoRan Gold and Copper's Cerro Verde mine – will double Peru's copper output by 2016.

The metal remains Peru's top export and minerals account for 60% of its $45 billion in exports.

Analysts, including a number of experts at the LatinFinance forum, expect copper prices to remain mostly stable for the coming years as a result of slow global recuperation and continued demand by China.

Velarde said the strong participation of mining and oil and gas "should contribute to average growth of 6.5% annually".

Resistant to external moves

Peru's international reserves, approximately $66 billion, and the structure of its debt would help the economy weather adverse external events, including an earlier than expected unwinding of quantitative easing by the US Federal Reserve, Velarde said.

"We do not believe that the changes on the way [by the Fed] are going to be very profound in our case," said Velarde.

Velarde and Castilla both said that the quick depreciation of the sol at the end of May, in wake of the Fed's comments on monetary policy, represented a temporary correction and that volatility would prove short-lived.

Velarde said Peru's international reserves were equivalent to 32.7% of GDP, the highest in the region, followed by Chile at 16.2%.

He also cited the positive effect of debt re-profiling in recent years.

Peru now has a higher percentage of locally-denominated debt than any other emerging market, he noted. Bonds in soles represented 55% of the total at the end of 2012. Malaysia ranks second globally, with 42% of its debt in local currency. LF

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