Economic Contraction

Peru expects weaker economic growth due to impact of landmine protests By Reuters

© Reuters. Las Bambas mine workers take part in a protest against the suspension of the mine, in Lima, Peru, June 2, 2022. REUTERS/Sebastian Castaneda

LIMA (Reuters) – Peru’s economic growth is likely to be slightly lower this year, according to a new central bank forecast on Friday following disruptions to major mining projects in the Andean nation, the world’s second-largest producer.

Soaring consumer prices and skyrocketing borrowing costs have lowered growth expectations across Latin America, with developing economies particularly vulnerable to economic volatility.

Peru’s central bank lowered its growth projection for 2022 to 3.1% from 3.4% previously, while maintaining its estimate of 3.2% growth next year, the president said. bank Julio Velarde in a presentation.

Velarde cited ongoing mining disputes, in addition to the impact of the Russian-Ukrainian war, as drivers of the downgraded growth projection.

Protests by indigenous people have disrupted Peru’s mining sector in recent months, including a 51-day shutdown of the Las Bambas copper mine of China-based MMG Ltd, one of the world’s leading producers of the red metal.

“Other sectors are performing better than we expected in March. What is going down is the mining sector,” Velarde said.

The central bank cut its 2022 growth forecast for the mining sector from 5.9% to 2.9%.

Velarde said he expects mining investment to fall nearly 5% this year, and potentially a much larger drop in 2023.

“If no new projects appear next year … there will be a contraction in mining investment next year of almost 16%.”

The bank’s projections also include a lower budget deficit this year of 1.9% of gross domestic product, compared to 2.5% previously forecast in March, mainly due to higher incomes, Velarde said.

The bank expects annual inflation of 6.4% for 2022 and 2.5% for 2023. In March, the bank said it expected inflation to be 3.6% this year.

Annual inflation in May hit 8.09%, its highest level in two dozen years, leading the bank to raise its benchmark interest rate to 5.5% at the start of the month.