Over the past 20 years, macroeconomic stability, trade openness, and a favorable international environment have enabled Peru to become an upper-middle-income economy. GDP per capita jumped from US$2,126 in 2003 to US$7,790 in 2023. Sound, prudent macroeconomic policies have resulted in low public debt, substantial international reserves, a credible central bank, and a robust financial system.
Peru has completed a decade of relatively low growth, averaging 2.3 percent between 2014 and 2023, with one in three Peruvians living in poverty. These results stand in stark contrast to those obtained in the previous decade, when the economy grew 6.4 percent and poverty declined from 60 percent in 2004 to 33 percent in 2013. These differences are attributable to institutional deterioration, a less favorable external economic context for the transition between decades, the effects of COVID-19, and marked political instability since 2018.
In 2024, Peru’s economy is recovering from the contraction last year caused by extreme weather events, social protests, and a decline in business confidence. The economy is expected to expand by 3.1 percent in 2024. The recovery can be explained by increased confidence, more favorable prices for mining exports, a fiscal stimulus that increased public investment, and a relaxation of monetary conditions by the Central Bank after inflation returned to the target range.
The economy is expected to grow by an average of 2.5 percent over the next two years. This moderate growth environment, coupled with low inflation rates, would help reduce poverty by 3 percentage points between 2023 and 2026.
To achieve a higher, more inclusive growth trajectory, Peru must address several short-term structural challenges. Improving the quality of public services related to human capital and infrastructure, improving public governance, fostering an enabling business environment that will remove barriers to business growth, and promoting a more stable political environment are some of the pressing challenges that should be addressed. Reducing vulnerabilities to climate shocks is also part of the pending agenda.
In addition to improving the social safety net to promote more inclusive growth, better jobs must be provided and informality and gender disparities in the labor market must be reduced. In the short term, the main challenge facing the economy is ensuring a more prudent fiscal path that will reduce the fiscal deficit observed in 2023 and 2024. This increased prudence will allow Peru to continue benefiting from the fiscal credibility that it has enjoyed over the past three decades and which has provided favorable conditions for access to debt markets for both the public and private sectors.
Last Updated: Oct 23, 2024
