OECD Economic Outlook, Volume 2025 Issue 1

Peru

GDP growth is projected to slow to 2.8% in 2025 and 2.6% in 2026, with global and domestic policy uncertainty weighing on the outlook. Government spending will moderate as fiscal consolidation resumes. Private investment will remain moderate, constrained by persistent uncertainty and tighter global financial conditions. Private consumption will be supported by low inflation. Export growth will weaken reflecting the direct impact of new US tariffs on Peruvian products and the broader drag from weaker global growth. Inflation is expected to remain close to the central bank’s 2% target.

The Central Bank’s broadly neutral monetary stance is appropriate and should remain cautious and data dependent. The government plans gradual consolidation in 2025 and 2026 to align the deficit with fiscal rules, but rising expenditure pressures and optimistic revenue projections make compliance challenging, requiring additional measures to meet fiscal targets. Streamlining permits, easing regulatory burdens, and strengthening subnational investment capacity can help crowd in private investment.

Strong domestic demand propelled the economic recovery

GDP rose by 3.3% in 2024, led by strong domestic demand and a rebound in agricultural and mining exports. Public investment rose by 14% and private consumption was supported by pension fund withdrawals. Private investment began to recover moderately, aided by improved business sentiment, looser financial conditions, and newly awarded Public-Private Partnership contracts. Historically high terms of trade supported the current account. Monthly GDP indicators show that growth remained strong in the first quarter of 2025, with GDP expanding by 3.9% year-on-year. Inflation remains well anchored within the central bank’s 1–3% target band, with headline and core inflation rising by 1.6% and 1.9% in April relative to the previous year, respectively, and expectations close to 2%. Despite a 0.8% rise in employment in 2024, real wages in the formal sector remain below 2019 levels, while high informality and weak participation persist, particularly for women and youth.

Peru

1. Non-financial public sector. Data for 2025 refer to the 12-month cumulative fiscal deficit as of April.

Source: OECD Economic Outlook 117 database; and Central Reserve Bank of Peru.

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Peru: Demand, output and prices

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The United States imposed a 10% tariff on Peruvian exports of goods in April 2025, affecting particularly agricultural goods, which made up over 45% of Peru’s exports to that market in 2024. Copper exports, representing less than 10% of bilateral trade to the United States, remain exempt but faced an average price drop of 3% in April y-o-y. Gold, a key export commodity, saw rising prices, while the currency depreciated moderately since mid-March. Ample currency reserves and low public debt provide resilience against shocks.

The fiscal deficit is set to decline, while monetary policy is expected to remain broadly neutral

Fiscal consolidation is planned for 2025–2026. While high metal prices will support revenues and narrow the fiscal deficit, additional measures equivalent to 0.3% of GDP in 2025 and 0.4% of GDP in 2026 are still needed to meet fiscal targets. Peru’s fiscal deficit reached 3.5% of GDP in 2024, marking a second consecutive year with a breach of the fiscal rule despite the economic recovery. Fiscal pressures are increasing due to newly introduced tax exemptions, including those for special economic zones, an underfunded pension reform, and potential further support to the state oil company, Petroperú. A broadly neutral monetary policy remains appropriate given well-anchored inflation expectations. Following the recent cut to 4.5%, the policy rate is expected to remain unchanged in the remainder of 2025‑26.

GDP growth is set to moderate

GDP growth will slow to 2.8% in 2025 and 2.6% in 2026, while inflation is expected to stay around the 2% target. Global and domestic uncertainty will weaken business and consumer confidence. Government efforts to accelerate PPPs and streamline permitting, and low inflation will partly offset this by supporting private investment and consumption. Fiscal consolidation will limit government consumption and public investment. Given elevated uncertainty, downside risks to growth have increased, particularly through weaker investment and external demand. Domestic political uncertainty may intensify in the lead-up to the 2026 general election, while rising insecurity and crime could hinder economic growth. Lower growth in China, Peru’s major trading partner, and weaker copper prices could hurt exports, government revenues, and investment.

Securing fiscal sustainability requires efficiency improvements, revenue mobilisation, and formalisation

Stricter control of the public wage bill and phasing out inefficient fuel subsidies and tax expenditures would help meet the fiscal rule. Failure to do so may erode investor confidence, raise borrowing costs, and worsen the debt outlook. To safeguard fiscal sustainability amid growing demands for social and infrastructure spending, Peru must raise tax revenues and improve spending efficiency. This includes strengthening budget planning, improving public investment management and enhancing subnational implementation capacity. Addressing informality, improving the tax administration and the eliminating ineffective tax exemptions are critical for broadening the tax base. Simplifying tax regimes for small firms could boost formalisation, support SME growth and generate additional revenues. Phasing out fossil fuel subsidies and introducing a carbon tax would aid both fiscal and environmental goals. In the current context of tighter global financial conditions and heightened uncertainty, restoring investor confidence is essential. Establishing a broad formalisation agenda that includes lower non-wage labour costs for low-income workers, leaner permits and regulations, stronger legal enforcement and better education and training - would raise investment, productivity and expand the tax base.