Peru's economy expected to grow despite tariffs, election uncertainty

Peru's economy is expected to continue growing this year, buoyed by rising private sector optimism and a better-than-expected performance in 2024.

BCP, the country's largest bank, revised its 2025 growth projection from 2.8% to 3.2%. Last year, GDP growth reached 3.33%, compared to a contraction of 0.4% in 2023, the lender wrote in a report.

The brighter outlook is due to increased public and private spending, the impact of interest rate reductions throughout 2024, controlled inflation and positive business expectations.

BCP wrote that the early stage of the economic cycle – rising concrete sales, business loans, and vehicle purchases – has passed and that the intermediate stage is beginning. During this stage, the real estate market and modern retail are expected to recover, among others.

"In the intermediate phase, inventories and sales reach a relative equilibrium, corporate profits are favorable, credit growth tends to accelerate, and monetary and fiscal policy reaches a neutral stance. Thus, if the economic cycle continues its usual dynamics and there is no significant impact from external, local or climatic events, non-primary GDP could grow close to 4% year-over-year in the first half of 2025," the report said.

This phase will last at least four and on average nine quarters.

Annual inflation is projected to reach 2.3%, within the central bank 1-3% target range. The base rate is expected to reach 4.25-4.50%.

Risks

Yet, the report also highlighted external risks stemming from the trade war initiated by President Donald Trump and internal ones related to the 2026 presidential elections.

Without the trade war and its impact on smaller countries, Peru's GDP could grow by 3.5% in 2025, the report said. However, if the situation worsens and tariffs become more widespread, growth could be limited to below 3%.

And although the economic outlook may weaken in the run-up to the elections, deeper impacts are not expected until the results are in.

"The impact on real variables such as investment has a lag of up to two quarters. Additionally, it will be necessary to monitor local political events during a pre-election year in the context of very low presidential approval. It is important to note that congress cannot be dissolved once next year's general elections are called in April 2025," the report added.