November 2014 Comparisons are odious? Peru’s Economic Outlook and Comparison to Its Regional Peers Munir Jalil Chief Economist Andean Region [email protected] +57 1 639 41 95 See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures Citi Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Peru Source: Citi Research & Bloomberg 2 Area: Population (2013E): 30.1MM Nominal GDP (2012): US$199Bn Nominal GDP (2013E): US$210Bn Nominal GDP (2014E): US$217Bn GDP per Capita (2012): US$6,712 GDP per Capita (2013E): US$6,960 GDP per Capita (2014E): US$7,075 Real GDP Growth (2013E): 5.8% Real GDP Growth (2014E): 2.5% CPI (2013): 2.9% CPI (2014E): 3.1% Exports FOB (2013E): $42.2Bn Exports FOB (2014E): $37.0Bn Imports CIF (2013E): $42.2Bn Imports CIF (2014E): $39.7Bn FDI (2013E): $9.3Bn FDI (2014E): $8.0Bn 1,285,216 sq km Some Macroeconomic Forecasts 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F Summary Data Nominal GDP, USD bn Nominal GDP, local currency bn Economic Activity Real GDP, yoy avg Real Investment Growth % yoy Real Consumption Growth % yoy Prices, Money & Credit CPI, % yoy (Citi estimates) CPI, % avg Balance of Payments, USD bn Current account % of GDP Trade balance Exports Imports Public Finances, % of GDP Public Debt 107 336 127 371 127 382 153 435 176 486 199 526 208 563 207 584 224 628 8.5 31.3 8.0 9.1 1.0 8.5 29.4 -22.9 38.8 8.6 4.1 8.2 6.5 12.9 5.8 6.0 12.3 6.4 5.8 10.5 5.5 2.5 0.1 4.7 3.8 3.5 5.1 2.9 2.8 3.1 3.2 2.5 2.5 3.9 1.8 6.7 5.8 0.2 2.9 2.1 1.5 4.7 3.4 2.6 3.7 1.5 1.4 8.5 28.1 19.6 -5.3 -4.2 2.6 31.0 28.4 -0.6 -0.5 6.1 27.1 21.0 -3.5 -2.3 7.0 35.8 28.8 -3.2 -1.8 9.2 46.4 37.2 -6.3 -3.2 5.2 46.4 41.1 -9.1 -11.8 -11.7 -4.4 -5.7 -5.2 0.0 -2.7 -2.4 42.2 37.0 38.8 42.2 39.7 41.2 29.8 24.1 27.2 23.5 21.8 19.9 17.4 17.4 17.0 3 Source: Citi Research Source: National statistics center or central bank of each country & Citi Research Jun-10 -2% Jun-14 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-09 Jun-14 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 0% Jun-14 Jun-09 Dec-09 Dec-08 Jun-08 Dec-07 Jun-07 2% Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 10% Dec-08 Jun-08 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% Jun-09 Jun-07 Dec-07 Jun-06 Dec-06 12% Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 4.28% Dec-06 Colombia Jun-06 -2% Dec-05 -4% Jun-06 4% Dec-05 -2% Dec-05 6% Jun-05 4% Jun-05 10% Dec-04 6% Jun-05 1.66% Jun-04 12% Dec-04 8% Jun-04 0% Jun-14 2% Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Peru Dec-04 Jun-04 Jun-14 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Jun-08 Dec-07 Jun-07 Dec-06 Jun-06 Dec-05 Jun-05 Dec-04 14% Dec-08 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Jun-08 Dec-07 Jun-07 Dec-06 Jun-06 Dec-05 Jun-05 Dec-04 Jun-04 Jun-04 Economic Growth %YoY Chile 10% 8% 1.94% Mexico 1.56% Brasil 8% 6% 4% 2% 0% -0.82% -4% 4 65% 65% 60% 60% 55% 55% 50% 50% 70% % of GDP Colombia 70% Source: National statistics center or central bank of each country & Citi Research % of GDP Dec-13 Apr-13 Aug-12 Dec-11 Apr-11 Aug-10 50% Dec-09 50% Apr-09 Peru Aug-08 55% Dec-07 55% Apr-07 60% Aug-06 60% Dec-05 61.2% Apr-05 70% Aug-04 65% Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 70% % of GDP Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Evolution of private consumption % of GDP Chile 67.2% 65% Mexico 65.21% 67.90% 5 Jun-05 11.33% % of GDP 16.68% 14% 8% Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Peru 15% 14% 14% 13% 13% 11% 11% 10% 10% 9% 9% 8% 8% Colombia 15% 12% 10% 10% 9% Source: National statistics center or central bank of each country & Citi Research Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 18% Jun-14 12% Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 % of GDP Jun-08 Dec-07 Jun-07 Dec-06 Jun-06 Dec-05 20% Dec-04 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 15% Jun-04 Dec-03 Evolution of government consumption % of GDP % of GDP Chile 12% 11.84% Mexico 14% 16% 13% 12% 11% 11.12% 8% 6 Source: National statistics center or central bank of each country & Citi Research Jun-14 Nov-13 10% Apr-13 10% Sep-12 15% Feb-12 15% Jul-11 20% Dec-10 20% May-10 25% Oct-09 25% Mar-09 30% Jun-14 Nov-13 Apr-13 Sep-12 Feb-12 Jul-11 Dec-10 May-10 Oct-09 Mar-09 Aug-08 Jan-08 Jun-07 Nov-06 Apr-06 Sep-05 Feb-05 Peru Aug-08 Colombia Jan-08 28.56% Jun-07 10% Nov-06 10% Apr-06 15% Sep-05 15% Feb-05 20% Jul-04 27.89% Jul-04 20% Dec-03 Jun-14 % of GDP Dec-03 % of GDP Jun-14 Nov-13 Apr-13 Sep-12 Feb-12 Jul-11 Dec-10 May-10 Oct-09 Mar-09 Aug-08 Jan-08 Jun-07 Nov-06 Apr-06 Sep-05 Feb-05 25% Nov-13 Apr-13 Sep-12 Feb-12 Jul-11 Dec-10 May-10 Oct-09 Mar-09 Aug-08 Jan-08 Jun-07 Nov-06 Apr-06 Sep-05 Feb-05 30% Jul-04 Dec-03 30% Jul-04 Dec-03 Gross fixed capital formation Chile 30% 25% 24.70% % of GDP Mexico 21.20% 7 Exports composition by product Peru Chile 26.6% 52.53% 37.74% 1.9% 4.0% 12.3% 55.1% Mining Oil and Derivatives Fishing Agriculture 9.73% Other Exports Mining Agricultural , forestry and fisheries Colombia Industry Mexico 29.6% 1.35% 84.05% 3.06% 55.2% 0.8% 11.54% 5.1% 9.3% Oil and derivatives Coal Coffee Ferronickel Other Exports Manufactures Oil Agricultural Extractive (Non-Oil) 8 Source: National statistics center or central bank of each country & Citi Research Oil & Derivatives Source: National statistics center or central bank of each country & Citi Research 10% Apr-14 Sep-13 Feb-13 Jul-12 Dec-11 May-11 Oct-10 Mar-10 Aug-09 Oil 60% 5% 0% Oil Exports 9 Apr-14 Sep-13 Feb-13 Jul-12 Dec-11 May-11 Oct-10 Mar-10 Aug-09 Jan-09 Jun-08 % of total exports Jan-09 Nov-07 Apr-07 Sep-06 Feb-06 Jul-05 Peru Jun-08 % of total exports Nov-07 54.0% Apr-07 25% Sep-06 Colombia Feb-06 % of total exports Dec-04 0% Jul-05 10% May-04 14.57% Dec-04 30% Oct-03 40% 70% Oct-03 50.20% 80% May-04 Mar-03 64.77% Mar-03 20% Jun-14 50% Apr-14 Sep-13 Feb-13 Jul-12 Dec-11 May-11 Oct-10 Mar-10 Aug-09 Jan-09 Jun-08 60% Sep-13 Dec-12 Mar-12 Jun-11 Sep-10 Mining Dec-09 Mar-09 Jun-08 Oil & Mining Sep-07 Dec-06 Nov-07 Apr-07 Sep-06 Feb-06 Jul-05 Dec-04 May-04 % of total exports Mar-06 Jun-05 Sep-04 Dec-03 Mar-03 Jun-02 80% 70% 60% 50% 40% 30% 20% 10% 0% Sep-01 70% Oct-03 Mar-03 80% Dec-00 Mar-00 Oil & mining exports over time Chile 55.76% 50% 40% 30% 20% 10% 0% Mining Exports Mexico 20% 15% 10.79% 80 10 70 0 Source: National statistics center or central bank of each country & Citi Research 10 Sep-14 Sep-13 Sep-12 Sep-11 Sep-10 Sep-09 Sep-08 Sep-07 Sep-06 Sep-05 Sep-04 100 Sep-14 Sep-13 90 Sep-12 100 Sep-11 40 Sep-10 110 Sep-09 120 Sep-08 50 Sep-07 130 Sep-03 160 Sep-06 60 Sep-02 Peru Sep-05 Colombia Sep-04 140 154.6 Sep-03 150 Sep-02 50 Sep-01 60 Sep-01 70 Sep-00 80 Sep-00 90 Sep-99 99.6 Sep-99 Sep-98 110 Sep-98 100 Sep-14 Sep-13 Sep-12 Sep-11 Sep-10 Sep-09 Sep-08 Sep-07 160 Sep-06 120 Sep-05 170 Sep-04 Sep-03 Sep-02 Sep-01 Sep-00 Sep-99 Sep-98 Terms of Trade Chile 140 120 111.4 80 60 40 20 0 70 Mexico 55.8 30 20 Copper Production 140 Thousands Fine Metric Tons US$ cents per pound Peru 120 500 450 400 100 350 300 80 250 60 200 150 40 100 20 50 0 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 0 Copper production (FMT) LME Copper Price 600 Thousands Fine Metric Tons Chile US$ cents per pound 500 450 400 350 300 250 200 150 100 50 0 500 400 300 200 100 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 0 Copper Production Source: INEI, Cochilco & Citi Research LME Copper price 11 How much of the commodities’ boom was saved and how it was used Marginal propensity to save revenues stemming from commodities Savings’ use as a ratio of extraordinary income 150 1 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0 100 Capital Activos Externos 50 0 Venezuela Peru Paraguay Ecuador Colombia Chile Brasil Bolivia -50 -100 Ahorro marginal de Ingresos de bienes basicos Source “Alder, G; Magud, N. 2013.“Four Decades of Terms of Trade Booms: Saving-Invesment Patterns and New Metric of Income Windfall” .WP 13/103. FMI Primary surplus or deficit of the Central Government 0% 5% % of GDP Brazil Peru % of GDP -1% 4% -2% 3% 2% -3% 1% 0% 10% % of GDP Chile 8% -1% 6% 4% 2% 0% 5% Colombia % of GDP 4% -2% -4% -6% 3% 2% 1% 0% -1% 5% % of GDP Mexico 4% 3% 2% 1% 0% -1% *Accumulated value until June 13 Source: National statistics center or central bank of each country & Citi Research Current Account Balance 4 Peru % of GDP 6 5 4 3 2 1 0 -1 -2 -3 -4 2 0 -2 -4 -6 -6.78 -8 2 Colombia % of GDP % of GDP -3.42 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 % of GDP 1 0.0 0 -0.5 -1 -1.0 -2 -1.5 -3 -2.0 -4 -2.5 -4.3 -5 Chile Mexico -2.08 2014* 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 -3.0 14 Source: National statistics center or central bank of each country & Citi Research IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. 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