OECD Economic Outlook, Volume 2025 Issue 2

Peru

GDP is projected to grow by 3.1% in 2025, 2.8% in 2026 and 2.7% in 2027, amid high domestic and international uncertainty. Low inflation, high copper prices, new infrastructure projects and regulatory simplification will support consumption, investment, and exports. Inflation is expected to remain close to the central bank’s 2% target.

The neutral monetary stance is appropriate and should remain cautious and data-driven. Fiscal consolidation has resumed, but stronger measures are needed to ensure compliance with the fiscal rule and debt sustainability, combining better spending efficiency with a comprehensive tax reform to raise revenues and fund education, social protection, and resilient infrastructure needs. Simplifying tax regimes for small firms, streamlining business licensing and permits, and improving regulatory predictability would boost formalisation, investment, and productivity growth.

Domestic demand is driving growth

GDP growth has been resilient in 2025, expanding by 3.3% year-on-year in the three quarters of the year, despite domestic and global uncertainty. Private consumption benefited from higher real incomes and a stronger labour market. Private investment rose by 9.0% year-on-year, reflecting improved business sentiment, looser financial conditions, and newly awarded Public-Private Partnership contracts. However, public investment moderated after double-digit growth in 2024, and net exports weakened as import demand outpaced exports. Monthly GDP increased by 3.9% year-on-year in September, highlighting resilience into the third quarter. Inflation remains well anchored within the central bank’s 1–3% target band, with headline and core inflation at 1.4% and 1.8% year-on-year in October, and one-year ahead expectations close to 2%. Employment grew by 0.8% year-on-year in the second quarter, and real wages in formal jobs rose 1.6% year-on-year in January-August 2025, though both labour force participation and formal wages remain below pre-pandemic levels.

Historically high terms of trade, driven mainly by copper prices, are supporting the current account, but global and domestic political uncertainty are weighing on activity. The sol has appreciated by 10% since early 2025 despite heightened domestic political uncertainty, supported by strong revenues from mining exports and remittances, and portfolio inflows attracted by still-elevated interest rate differentials. Ample currency reserves and low public debt provide resilience against shocks. The overall impact of the US tariffs of 10% on most products is projected to be modest, as raw copper exports remain unaffected and off-season production and lower tariffs than those faced by main competitors are expected to mitigate effects on agro-industrial and textile exports, which represent half of exports to the United States.

Peru

Note: Inflation refers to Metropolitan Lima area. Data on GDP refer to 12-month moving averages of seasonally adjusted data.

Source: INEI; and BCRP.

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Peru: Demand, output and prices

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Fiscal policy should continue consolidating, while monetary policy remains appropriately neutral

Fiscal consolidation is planned for 2025–2027. High metal prices will support revenues and help narrow the deficit The government has also recently announced austerity measures, including cuts to non-essential current spending amounting to around 0.1 % of GDP. However, additional measures will be needed, particularly from 2026, to meet fiscal rule targets, given the narrow tax base and rising spending pressures. Newly approved tax exemptions will weaken revenues and exacerbate distortions, while higher spending on the public sector wage bill, security, infrastructure and social programmes, and renewed financial support to the financially distressed state-owned oil company Petroperú add to fiscal pressures. The neutral monetary policy stance is warranted given anchored inflation expectations. After the recent cut to 4.25%, the policy rate is expected to stay unchanged through to 2027.

Growth is expected to ease

GDP is projected to expand by 3.1% in 2025, 2.8% in 2026 and 2.7% in 2027, while inflation is expected to remain close to the 2% target. The eighth extraordinary private pension fund withdrawal will temporarily lift private consumption but reduce future pension benefits and capital market depth, and threaten fiscal sustainability. Growth will ease in 2026 and 2027 as the effect of private pension withdrawals fades, fiscal consolidation limits public spending with the economy gradually returning to a slower underlying growth trend. The main risks to the outlook are tilted to the downside. Domestic risks include rising political uncertainty ahead of the 2026 general elections, renewed social unrest driven by higher insecurity and crime, and delays in large investment projects. Weaker growth in China, Peru’s main trading partner, and lower copper prices would reduce exports, fiscal revenues, and private investment, and renewed global financial volatility or a slower-than-expected easing by major central banks could raise financing costs and dampen confidence.

Preserving the strong fiscal framework and boosting productivity are key

Maintaining the strong fiscal framework requires continued fiscal consolidation to meet fiscal rules, safeguard debt sustainability and rebuild fiscal buffers. Containing current spending, particularly the growth in the public wage bill, is needed to protect space for public investment. Improving spending efficiency by strengthening budget planning, improving public investment management and enhancing subnational implementation capacity would increase fiscal space. Addressing informality, improving the tax administration and eliminating ineffective tax exemptions are critical to broaden the tax base. Simplifying tax regimes for small firms could boost formalisation, support productivity growth and generate additional revenues. Phasing out fossil fuel subsidies and introducing a carbon tax would aid both fiscal and environmental goals. Simplifying complex and overlapping business regulations, reducing the cost and time to obtain permits, and improving coordination across levels of government would ease firms’ formalisation and support investment. Complementing these reforms with lower non-wage labour costs for low-income workers, and better skills would further support productivity and job quality.