Peru's Economy Continues to Slow

By Dow Jones Business News, 
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By Ryan Dube

LIMA, Peru--Peru's gross domestic product expanded by 1.84% in May from the same month last year, the government said on Tuesday, as the country's economic activity continues to slow.

National statistics agency INEI said May experienced the slowest monthly expansion since 2009.

Analysts had expected weak growth for the month, but the figure came in slightly below some forecasts. GDP grew 2.0% in April, 4.9% in March and 5.7% in February.

INEI said the country's accumulated economic growth between January and May was 3.57%.

In May, activity in the mining and hydrocarbons sector contracted 4.49%, while in the manufacturing sector it fell 2.53%. The construction sector, however, grew 4.75% and the finance and insurance sector expanded 12.59%.

Peru's economy has been hurt by a decline in exports due to lower commodity prices for products such as copper and by lower-than-expected mining output. The country's gold production in May fell 24.6% compared with a year earlier, the government said, due to weak output at the Minera Yanacocha mining complex, which is majority owned by Newmont Mining Corp., and at operations owned by Barrick Gold.

Peru is one of the world's major mining countries.

Meanwhile, private investment in Peru has also declined in recent months, leading the government recently to approve a package of measures to shore up investment and boost the economy.

Last week, the Central Reserve Bank of Peru reduced its reference interest rate by a quarter percentage point to 3.75%, the first cut since November last year.

Scotiabank Peru said in a report on Tuesday that the central bank could make more cuts later this year. "The persistence of economic weakness for longer than expected raises the possibility of a further" quarter-point rate cut, Scotiabank said.

Central bank President Julio Velarde said last week he expected the economy to pick up in the second half of this year, however he hinted the monetary authority would likely reduce its forecast for full-year economic growth due to the slowdown in the second quarter.

The economy is expected to be supported in the second half of this year by the startup of construction on large infrastructure projects and on expectations that mining output will increase.

The central bank currently forecasts the economy will expand by 5.5% in 2014.

Write to Ryan Dube at ryan.dube@dowjones.com


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