Political and economic scenarios for 2023-2026

PERU - Forecast 13 Jun 2023 by Alfredo Thorne

This report focuses on our 2023‒2026 forecasts. In the first section, we discuss possible political scenarios. Our base case is that President Dina Boluarte remains in office until July 2026. However, we suggest that Boluarte faces two significant threats: accusations of human rights violations against her and her government, and a potential rise in her unpopularity rating amid poor economic performance.

The Ministerio Público Fiscalía de la Nación (MPFN, the Attorney General’s Office) is currently investigating the human rights allegations. In relation to the risk of greater unpopularity and eventual resumption of protests, the main risk is that Boluarte fails to pacify the southern and northern regions that suffered most from the Q1 economic slump.

Next, we discuss the economy, and review the April high-frequency reports. We diverge from official forecasts in that we expect the economy to rebound in H2, rather than in Q2. Moreover, we argue that the El Niño weather phenomenon, which is raising global temperatures, introduces risks into our 2023 forecasts. Then, we move to the twin current account and fiscal deficits. We forecast a narrower current account deficit and, while our fiscal deficit forecast currently remains unchanged, we warn of downside risks. Finally, we move to our financial market forecasts, in which we have turned more bearish on inflation, but more positive on the PEN/USD spot rate and government bond yields.

Now read on...

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