where is economy going?

It is highly understood that the world economic situation had a large-scale decline with the arrival of the pandemic and this itself affected Peru in a negative way after mandatory quarantine was imposed as a preventive health method; complying with the commercial strike that also affected the national economy. In 2021, commercial activity began to slowly resume, despite still having different variants of Coronavirus; but the ingrained situation of 2022 regarding the war and some other aspects, only caused inflation – rooted with Covid-19 – to escalate even more, as well as unemployment. Then, it is assured by ComexPeru, that various entities determined that we may be headed for stagflation; this situation might be explained in the next paragraphs.

Just at the beginning of 2022, the situation as a result of the rise in prices not only in Peru but globally, has generated a lot of concern regarding the world economy and it was declared that we may be headed to stagflation that, according to the BCRP (Central Reserve Bank of Peru), is the economic process through which an economic strike is produced; causing a decrease in production and an increase in the unemployment rate.

The previous year alone was dedicated to repairing the damage in world economy and finding a solution to high inflation, but minding the current situation in the international context, regarding the conflicts between the states Russia and Ukraine and factors ingrained by the still on-going pandemic; 2022 will continue to rise inflation as the IMF determined an increase of 8.7% in emerging markets and economies in growth, and 5.7% in advanced economies; explicitly affecting Peru in its path.

This year, the BBVA Research reduced its growth forecast of Peru to 2% due to the consideration of a situation with unfavourable conditions, the weakening of business confidence and the social conflict experienced. And on top of that, Standard & Poor's lowered the country's credit rating; generating even greater enfeebling of private expectations, which would negatively affect its growth.

On the other hand, the pandemic brought a huge rise of unemployment due to the different restrictions in Peru and globally. During February, there was an around 4.9% increase in the Gross Domestic Product (GDB) and, through this time, it decreased because of the illness and because quarantine did not let anyone work unless it was remotely or virtually, this made a lot of companies to reduce the quantity of their employees. And since the fourth quarter of 2021, the unemployment income began to increase reaching 4.4% percent, while that was happening the inflation started growing and turned into the highest percentage in the last 13 years. Now, in 2022, the BCRP has responded with 9 consecutive increases in the reference rate, in order to the anchor agent’s inflation expectations, but the projections for this year are not good entirely; we have not gotten back to recover the confidence of the private sector to enhance private investment and create jobs.

To summarise, the rise of prices in certain commodities such as petroleum, grains, tariff rates and the constantly changing percentage of supply and demand, as well as the high inflation; were all a result of the world current delicate circumstances and the permanent situation of the pandemic, that have affected most developing countries and the whole international society. Nonetheless, employment and growth indicators in Peru show a slow recovery of this situation nationally, but a little bit lower than expected due to the same reason; making stagflation a great probability to settle in the near future. 

For a detailed interpretation about the topic, check the ComexPeru article in: “Precios altos y proyecciones de crecimiento estancadas: ¿Estamos cerca de un escenario de estanflación?” (link above) that has a total and more specific information about the matter.

REFERENCE  

ComexPerú (2022, April 22). "Precios altos y proyecciones de crecimiento estancadas: ¿Estamos cerca de un escenario de estanflación?" Retrieved from: https://www.comexperu.org.pe/articulo/precios-altos-y-proyecciones-de-crecimiento-estancadas-estamos-cerca-de-un-escenario-de-estanflacion