News on Peru’s Economy 2010

LIMA (Reuters) – Peru extended its economic recovery in April to bolster expectations that it and Brazil will grow the fastest in Latin America this year, though recent steps taken by the government will likely avert overheating.

The Andean country’s economy grew 9.26 percent in April from a year earlier, while expansion from March was a tepid 0.06 percent.

Driven by surges of 21 percent in construction, 16 percent in manufacturing and 11 percent in retail, year-on-year growth in April topped the 9.1 percent forecast from a Reuters poll.

The data showed Peru’s economy grew at its fastest pace in 18 months. Many economists and the International Monetary Fund say Peru and regional giant Brazil will each expand up to 7 percent this year as they recover from the global crisis.

“Here (in Peru) and in Brazil they have started raising interest rates, fiscal expenditure is being reduced, there’s also a legal framework to stop the economy from growing too strongly,” said Maria Cecilia Deza, an analyst with the local branch of Spanish bank BBVA.

The Peruvian government cut public spending and put a hold on borrowing last month in a bid to cool economic growth and meet a fiscal target requiring a deficit narrower than 2 percent of gross domestic product.

Last week, the central bank raised the benchmark interest rate to 1.75 percent, the second increase in as many months. But it said it decided to keep the rate “exceptionally low” because of risk factors related to global economic uncertainty.

MODERATE MONTH-ON-MONTH GROWTH

Tame growth from March may support comments by Finance Minister Mercedes Araoz that the economy was not overheating.

Araoz said on Friday that Peru does not plan to take more steps to cool down economic growth because inflationary pressures are not worrisome.

“As a result of fiscal and monetary policies the speed of growth is slowing slightly,” said Juan Carlos Odar, an economist with Banco de Credito, Peru’s largest bank.

“There is a statistical spin, because the speed at which GDP is rebounding versus the previous month is moderate, (although) year-on-year growth rates are high,” he said.

Peruvian officials say the economy cannot grow more than 7 percent this year without pressuring inflation. The central bank’s target range is between 1 and 3 percent and most forecasts say prices will rise about 2 percent this year.

Peru’s economy should grow 8 percent in the second quarter versus the same period last year, a top central bank official said last week.

The government forecasts the economy will expand 5.5 percent this year, although some officials have indicated it will be considerably higher.

(Additional reporting by Patricia Velez; Writing by Eduardo Garcia; Editing by James Dalgleish)