Peruvian business confidence takes big hit from ongoing protests

Peru's business community is no longer bullish about the change in government after the removal of former leftist president Pedro Castillo. 

Business expectations have dropped sharply and economic analysts have now cut GDP growth expectations to 2.1% for this year, down from 2.5% last month, while inflation forecasts have risen to 4.6% from 4.3%, according to a survey from the central bank (BCRP).

The protests and roadblocks in the wake of the December 7 ouster of Castillo had caused cumulative losses of 2.43bn soles (US$635mn) through January 26, according to the economy and finance ministry MEF. 

Meanwhile, the latest survey of more than 300 representatives of companies, financial institutions and economic analysts by the BCRP shows that expectations for an economic improvement in the next three months stood at 32 points, some 10 points fewer than a month ago. A reading below 50 points signals a pessimistic outlook.

That figure is the lowest seen since June 2020, at the height of the COVID-19 pandemic and accompanying economic crisis, which led Peruvian GDP to dive 11.1% that year. It's also lower than the 33.6 points recorded during the first month of Castillo's government in August 2021, when it was believed that Peru would take a sharp turn to the left.

Expectations for the next 12 months show a similar pattern at 47 points, down from 54 points in the previous survey.

PERSISTENCE

There will likely be little improvement in private-sector confidence if the government, lawmakers and protester leaders fail to reach some sort of compromise. 

Although congress again debated a proposal to bring elections forward this year, the bill was once again rejected by lawmakers. 

International institutions have also begun to cut their forecasts for the Peruvian economy. Moody's Investor Service downgraded Peru's long-term rating to 'negative' from 'stable,' with Jaime Reusche, senior sovereign risk analyst at Moody’s, saying that his 2.3% estimate for GDP growth in 2023 has significant downside risks and that the country's rating could be lowered if there is permanent damage to institutions.