The big dipper

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Big dipper
Sep 2nd 2009
From the Economist Intelligence Unit Views Wire

Peru's economy has shrunk but it should escape recession

Peru’s economy has been one of the most resilient in LatinAmerica since the global recession began, but it has not avoided a dramatic slowdown in growth. Indeed, economic activity contracted in the second quarter of 2009 by 1.1% year on year, the firstquarterly GDP contraction since 2001. The shrinkage is mainly the result of a decline in foreign demand, particularly for Peru’s key mineral exports, as well as a strong drop in domestic investment. However,the economy is not expected to fall into recession this year, as growth will rebound in the second half.
While second-quarter GDP contracted, growth in the first half of 2009 was still positive,although barely, at 0.3%, year on year. This is a massive deceleration from the 9.8% rate of growth posted in 2008 and 8.9% in 2007. Peru has experienced among the highest growth rates in Latin Americasince 2002.
Yet Peru will be able to escape recession thanks to countercyclical measures and ongoing commodity demand from Asia. We expect GDP growth to reach 1.3% for full-year 2009, and to rise to2.7% in 2010 as strengthening external demand boosts exports and investment.

Stimulating policies

Peru has been in a strong position to run a countercyclical policy to shore up the economy duringthe global recession, owing to sound public finances (Peru is a net public creditor) and the comfortable cushion provided by international reserves held by the Banco Central de Reserva del Perú (BCRP,the Central Bank). This has allowed officials to implement robust monetary and fiscal measures to stimulate growth so far, and they are prepared to act further.
The Central Bank has implemented anaggressive monetary-easing policy, which is now nearing an end, and in late 2008 the government announced a US$3.2bn (2.7% of GDP) stimulus package, partly drawing on a US$3.3bn fiscal stabilization...
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