Peruvian Current Account Deficit Will Narrow In 2023 As Import Demand Softens

• Fitch forecasts that Peru’s current account deficit will narrow from 3.3% in 2022 to 2.3% in 2023, as income support measures sustained more robust import demand through Q3 2022 than anticipated.
• In the coming months, as fiscal stimulus measures expire and economic headwinds mount, import demand is expected to ease. While a global slowdown will also dampen export growth, recovering demand from China for Peruvian copper will prevent a more rapid slowdown. This will result in a wider goods trade surplus, which is forecasted to reach USD18.3Bn in 2023, from USD14.6Bn in 2022.
• Export growth will ease more modestly, from 12.7% in 2022 to 10.2% in 2023. Goods exports were up 12.6% in the year through August, as the price of metals and oil – which combined, account for approximately 70% of the Peruvian export basket – remained elevated.
• Peru’s primary account deficit will remain stable at 8.0% of GDP in 2023. Historically, Peru’s business-friendly environment has sustained investment in the mining sector and supported robust profit repatriations for foreign-owned firms. However, softer growth and lower copper prices in the coming months will cap funds that companies have to send abroad.
• Growing foreign direct investment (FDI) inflows and a stable stock of international reserves will allow the country to continue financing its current account shortfall. In addition, as of September 2022, the Banco Central de Reserva del Perù (BCRP) held USD74.2Bn in reserves (18.4 months of import cover). 
• While this marks a gradual decline from the peak of 27.4 months of import cover held during March 2021, Fitch expects this plentiful reserve stock will be sufficient in maintaining Peru’s external account stability in the event of a balance of payments shock.

(Source: Fitch Solutions)