Explosion of Candidates Under Growth Stagnation
We expect at least ten of the 17 current presidential candidates to stay in the race, after the January 11th deadline to register to run in the April 10th elections. December polls show Keiko Fujimori maintaining her lead, with voter intentions at 30%- 35%, and Pedro-Pablo Kuczynski a distant second at 15%, three points ahead of Cesar Acuña. Alan Garcia, now aligned with former PPC adversary Lourdes Flores, is fourth, with less than 10%. The main changes from mid-year are Acuña’s 9 pp surge, and García’s slight dip, while Fujimori and Kuczynski retain their relative positions. A runoff seems almost certain, between Fujimori and one of the other three leading candidates. Pollsters still put undecided, void, and blank votes at around 20%.
Congress will probably be distributed along the same proportions as the presidential candidates. No party is likely to achieve a majority, which will force the new president to try to strike alliances. While no major candidate threatens to change the basic pillars of the economic model, all sorts of growth-rekindling proposals are being floated, without much reference to costs.
GDP growth at 3% y/y in October confirms the mild economic recovery, led by primary activities, while non-primary sectors linked to domestic demand and non-traditional exports are still growing only in the 2% range. We expect growth of 3.5% y/y or more in November and December, given the strong increase in mining (particularly copper), and the good fish catch. We foresee 2015 GDP growth at 2.8%, just shy of the Central Bank’s 2.9% forecast.
We expect growth to improve to just over 3% in 2016, on rising copper production and a rebound in subnational government outlays—but not to 4%, as the Bank forecasts. We hope for greater activity in infrastructure PPPs. But we expect private investment growth stagnation to persist, and El Niño could still bring negative effects.
November inflation was high (at 0.3 m/m), raising the 12-month figure to 4.2%. While we expect low inflation in December, the yearend headline rate will be above 4%, and the core number flat at about 3.5%.
Though in recent days the sol has depreciated, compared with its South American peers it has declined among the least. Still, the Bank will likely tighten further if depreciation pressures persist.
Fiscal revenues are expected to fall by 9% in real terms in 2015, with a fiscal deficit of about 2% of GDP, below the Finance Ministry’s 2.7% target.
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