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Peru leads global economic crash with 30.2% quarterly GDP drop

Bloomberg August 21 | Updated on August 21, 2020

Peru is one of the hardest hit nations in the Latin American region   -  Bloomberg

Mining, fishing sectors rebound post lockdown, but retail, services and small businesses are still in doldrums

Peru’s economy collapsed at a record pace in the second quarter as the pandemic shuttered businesses and put almost half the country’s urban population out of work.

Gross domestic product plunged 30.2 per cent from a year earlier, the deepest slump of any major economy, the country’s statistics agency said Thursday. It follows a 3.5 per cent drop in the first quarter, putting the economy officially in recession, and one that the World Bank expects to be among the deepest anywhere this year.

One the region’s strictest lockdowns brought much of the economy to a virtual standstill in mid-March. While industries such as mining and fishing rebounded quickly after the government eased restrictions in May, service and retail sectors are lagging and many of the small companies that make up the backbone of the economy have gone bankrupt.

“It is not so easy for economic activity to return when you have had such a brutal drop,” said Miguel Jaramillo, a researcher at Grade, a Lima-based think-tank, before the report’s release. “Many companies have folded, and they’re going to keep folding. It is naive to think we’ve touched bottom.”

Hospitality blues

Peru’s hospitality industry, which has been hardest hit by the pandemic, contracted almost 90 per cent compared with the same quarter of last year, while construction plunged 67 per cent. Retail dropped 45 per cent and mining fell 37 per cent, the report said.

The number of people in active employment plunged by almost 40 per cent from a year ago, and dropped by almost 50 per cent in towns and cities, the agency said last week.

Activity bottomed in April and slowly recovered in May and June, but remains well below its level prior to the outbreak and the year prior. Recovering external demand and higher copper and gold prices should provide some relief, but policy makers will have to be more effective implementing stimulus measures, said Felipe Hernandez, Latin America economist with Bloomberg Economics.

Govt measures

The government approved 128 billion soles ($35.8 billion) of economic measures, including tax relief and cheap loans, to mitigate the lockdown’s impact. Finance Minister Maria Antonieta Alva said this week the measures will prevent the economy slumping more than 20 per cent this year. The World Bank forecasts a 12 per cent drop in Peru’s GDP.

Peru has one of the highest virus death and case counts after easing stay-at-home restrictions in much of the country of almost 33 million last month led to a resurgence in infections.

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Published on August 21, 2020
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