Business, Mining

Peru’s Economy Hit by Falling Copper Prices as Growth Disappoints

Peru’s economy had a tough time last week, hit by the release of data showing a sharp decline in growth in November, which came only a day after a global sell-off of copper that sent the price of the country’s biggest export earner tumbling.

The National Statistics Agency, INEI, said Thursday that Peru’s gross domestic product expanded just 0.31% in November versus the same month in 2013, its lowest rate of growth since 2009 when the international economy was reeling from the global financial crisis.

The growth was well below expectations in the private sector, which thought that GDP would expand closer to 2%.

The economy was dragged down by a large contraction in the fishing and manufacturing sectors, and weaker performance in others like mining and construction.

The slowdown led the Central Bank to unexpectedly cut its key borrowing rate by 25 basis points on Thursday night.

The decision to move the reference interest rate to 3.25% from 3.5% caught private sector economists by surprise. They had forecast the bank would keep the rate steady, as lowering it could add further pressure against a weakening sol currency and inflation that is above the monetary authority’s target range of 3%.

The Central Bank’s chief economist, Adrian Armas, said Friday that growth in December is expected to show better results than November.

Faced with a sharp slowdown in early 2014, after over a decade of robust growth, government economists originally said that the economy would recover in the second half of last year. November’s data shows that original estimate was too optimistic.

Now, many economists, both public and private, see growth bouncing back in mid-2015 thanks to new mining production and infrastructure works.

But a few analysts think that the rebound could be further undermined following the sharp fall in copper prices this week. The price of copper shed more than 5% on Wednesday, reportedly due to a sell-off by investors in Asia, sending the shares of mining companies in mineral-rich countries like Peru tumbling.

That sharp fall will further hurt Peru’s exports. Copper is the country’s biggest export earner, accounting for more than 20% of the total value of its shipments abroad.

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