Mining to drive accelerated GDP growth in Peru

TORONTO (miningweekly.com) – A new report published by BMI Research expected that the earlier-than-expected realisation of production capacity in the mining sector drove accelerated real gross domestic product (GDP) growth in Peru in 2015.

BMI had revised its real GDP growth expectation for 2015 upwards to 3.2%, from 2.8% previously, in line with the government's reported headline figures.

“Peru will see economic activity accelerate in 2016 and remain robust in the coming years. Its extractive sector remains among the region's most positive growth stories and government expenditures will drive investments that support a gradual diversification of the economy,” stated analysts.

Despite Peru having not yet released full-year GDP data for 2015, monthly data through the end of 2015 suggested that surging mining production offset weak private consumption and investment.

As a result of the strong growth in the country’s extractive sector, BMI adjusted its real GDP growth expectation lower to 3.6%, from 3.8% previously.

PROJECT PIPELINE
BMI expected Peru's mining sector to see continued robust production growth, particularly in copper and gold, despite an environment of persistently weak commodities prices.

The mining sector's growth through 2015 far outpaced the broader economy, and a robust pipeline of projects set to come on line in the coming years would underpin its continued strength.

According to BMI, the country was benefiting both from a series of projects initiated before commodities prices began falling precipitously in 2014 and from new investments made as mining companies increasingly focused on their highest-value assets.

In January, Australian firm MMG’s Las Bambas copper mine made its first shipment and was expected to reach commercial production by the second quarter, placing it among the world's three biggest copper mines. In February, Canadian miner Barrick Gold announced plans to spend $640-million to extend the life of its Lagunas Norte mine, one of the world's largest gold mines.

Meanwhile, BMI expected that government stimulus programmes would provide further tailwinds to headline growth. Bureaucratic obstacles prevented government from implementing certain spending plans during the first three quarters of 2015.

However, BMI found that April presidential elections, which had coalesced around a field of centrist and centre-right candidates, would likely result in the election of a new government that emphasised infrastructure investment and other forms of capital expenditures.

“While Peru already maintains an investor-friendly regulatory environment, improvements in the country's infrastructure and basic services provisions will support the development of non-extractive industries. Additionally, the country's weaker currency will improve export competitiveness,” according to the report.