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Fitch raises Peru's 2017 growth forecast, says budget still needs to stabilize

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Fitch raises Peru's 2017 growth forecast, says budget still needs to stabilize

Fitch Ratings on Oct. 18 said it now expects Peru's economy to grow 2.5% in 2017, an improvement from its previous forecast of 2.3%.

Meanwhile, the rating agency maintained its GDP growth forecast for 2018 at 3.7%.

Peru's economy is recovering on the back of growing mining and public investment, but stabilizing the general government budget remains "a key rating sensitivity" for Peru as 2018 approaches, Fitch said.

Economic activity in the country was impacted by the flooding damage in coastal areas due to the El Niño phenomenon as well as delays in large infrastructure projects due to a scandal involving Brazilian conglomerate Odebrecht.

However, Fitch said private mining investment, which remains a major economic indicator, grew 6.9% year over year in the second quarter of 2017, following three years of contraction. Other metrics were also up, including gross capital formation, manufacturing investment, domestic demand and non-primary economic activity.

On the other hand, Peru's tax revenue has declined to 13.2% of GDP in September on a 12-month rolling cumulative basis, Fitch said.

"Preserving budget space while balancing social and infrastructure investment needs over the medium to long term will require stabilizing and raising Peru's aggregate revenue base, which is among the smallest in Latin America, relative to BBB category peers," according to Fitch.

Fitch currently holds a BBB+ long-term foreign currency issuer default rating for Peru, with a stable outlook.