Hot spots: Peru. (International Insight).(economic forecasting data)(Brief Article)(Statistical Data Included)

The economy did better than virtually anyone anticipated last year, and it is now poised for strong growth in 2002. The main drivers will be mining and construction, but agriculture and fisheries should also put in a better performance than they did in 2001.

By November of last year, after real GDP had slipped by 0.5 percent in the first 11 months, the general consensus was that the economy for 2001 as a whole would show a slight contraction. But, instead, real GDP jumped 4.1 percent in December, propelled by a nearly 29 percent leap in mining and energy production, and this left the country with real growth of 0.2 percent for the year as a whole, following a 3.1 percent expansion in 2000. The push to mining and energy came primarily from the inauguration in November of the giant Antamina copper-zinc mine, which is scheduled to reach its full current operating capacity this year.

Antamina, which is operated by BHP Billiton, Noranda Inc., Teck-Cominco Ltd, and Mitsubishi Corp., is forecast to become the world's seventh-ranking copper producer and the third-ranking zinc producer. Its combined output is projected at 1.65 million metric tons in 2002, boosting Peruvian copper production by 35 percent and zinc output by 50 percent. This alone will rachet up real GDP by some 1.4 percent this year. A big gas field, Camisea, will also go fully on stream, helping to perk up economic activity in general.

Additionally, the government is pursuing a privatization program that, it holds, will raise 700 million USD in extra revenues in this year's first semester, and perhaps 1.1 billion in 2002 as a whole. This assumption seems overly ambitious, but even a substantially smaller sell-off of state properties would provide much of the wherewithal with which to fund President Toledo's pledges of sharply stepped-up infrastructure investment -- in highways, bridges, hospitals, shools and above all adequate and affordable housing. This makes it likely that construction, which slumped by 6.7 percent in 2001, will grow by at least 7 percent-8 percent in 2002.

Better results are also expected from the fishing sector, after a difficult last year. Climate conditions appear to have improved, and fish stocks seem to be recovering. All in all, the government's prediction of 35 percent-4.0 percent real GDP growth this year seems to be quite realistic. This may not mean much to the average Peruvian, since growth would have to be on the order of at least 6 percent-7 percent to trickle its benefits down to the masses, but international investors are happy about the outlook.

So are the nation's banks, of which most are owned by foreign interests. The financial institutions have enjoyed strong deposit growth recently, a sign of growing confidence. To improve profits, they still need to slash bad loans (some 9.7 percent of total portfolios) and bolster their lending to financially sound debtors, but if the economy grows as officially predicted, they should have no difficulty doing so. The sector overall is sound. Inflation is ...