Peru's economy slows in August with crime a major threat to faster growth

Peru's economic growth slowed in August, with some sectors at risk of losing further steam if issues related to rising crime are not addressed.

In August, GDP increased by 3.53% year-on-year compared to 4.47% in July, according to statistics agency INEI.

The August expansion can primarily be attributed to the mining sector, which grew 8.87%. In contrast, other labor-intensive sectors such as manufacturing and retail reported growth rates below 3%.

The economy expanded 2.88% in the first eight months, while growth for the 12 months through August was 1.69%.

Projections from local financial institutions put the 2024 growth rate at between 2.9% and 3.1%, with crime representing a major downside risk.

The crime factor

Economic activity is increasingly being undermined by escalating crime rates - including extortion and robbery – and this scenario is prompting firms to prioritize operational security over expansion plans.

In the retail sector, which represents over 10% of GDP, growth has remained stagnant at below 3% in January-August. 

In August, it grew 2.86% year-on-year, according to INEI.

Although the fourth quarter tends to see higher sales due to Christmas and year-end bonuses for workers, there are growing concerns within the sector. 

The Christmas campaigns, which kick off in October, are likely to be hampered this year by the increasing public safety problems, financial daily Gestión reported Jorge Solís, president of the country’s federation of municipal savings and loan institutions, as saying.

The manufacturing sector, representing 16.5% of GDP, faces similar difficulties. A survey by local manufacturing trade group SNI shows that two out of 10 companies suffered robberies in the third quarter. 

The survey also shows that 47% of the 150 respondents saw their production negatively impacted by crime. 

Consequently, these companies are reallocating funds towards safeguarding their operations. Although several firms plan to hire more staff, there is a growing lack of appetite for short-term investments. 

The sector recorded growth of 2.71% in the first eight months, while registering a decline of 0.48% in the 12 months through August.