The sharp decline in metal prices led Peru to post its weakest annual economic growth in five years in 2014, raising concerns that the once red-hot economy could even enter into a recession.
On Monday, the national statistics institute, INEI, said that Peru’s economy grew just 2.35% in 2014, down from 5.8% the previous year.
The growth was below projections from both the Central Reserve Bank of Peru and the Finance Ministry, which reviewed their forecasts downwards several times last year. At the start of last year, they had forecast a growth of 5.5% to 6% in 2014.
The INEI said that Peru’s growth last year was the lowest since 2009, at the height of the global financial crisis, when the Peruvian economy expanded at under 1%.
The agency said that the sluggish growth was impacted by a 27.9% decline in the fishing industry, as well as a 3.3% fall in manufacutring and a 0.78% decline in the important mining and hydrocarbons sectors.
Bank of America Merrill Lynch said there is a “serious risk of recession if mining continues to underperform.”
But most other private-sector economists say they expect economic growth to recover in the coming months, thanks to increased copper production, the start of construction at new infrastructure projects and an expansionary fiscal policy.
“We continue to believe that activity will gain more traction gradually, throughout the first half of the year, as the lower fuel prices and the positive effects of fiscal measures will support non-primary activities and the supply shocks around primary sectors will ease,” said the Peruvian brokerage firm Inteligo SAB.
Capital Economics said that the “weak data means that the Central Bank may also opt to lower interest rates further – perhaps as soon as next month.”
The last time Peru’s Central Bank cut its reference interest rate was in January, just after the INEI reported that GDP grew 0.3% in November. The bank has stayed on hold in February, as GDP data came out after it held its monthly board meeting. But GDP in December also posted poor growth, at just 0.5%.