Mining riches and political rifts

Peru’s economy demonstrated resilience in 2024 despite domestic unrest and global headwinds, achieving an estimated growth of +3.1%. This performance was driven by public spending, robust private consumption and favorable global commodity prices, particularly for copper and gold. Mining remains a cornerstone of the economy, with high global demand sustaining activity. However, intermittent strikes and protests disrupted economic operations, presenting downside risks for 2025. Despite these challenges, inflation ended 2024 within the Banco Central de Reserva del Perú’s (BCRP) target range of 1-3%, largely due to declines in food and fuel prices. This allowed the central bank to cut its policy rate to 5% in November 2024, with further easing expected in 2025 to support consumption and investment amid an inflation average forecasted at 1.5-2%.

Export performance in 2024 presented a mixed picture. While goods export volumes slowed, high prices for key commodities, such as copper and gold, bolstered export revenues. Risks loom for 2025 due to potential changes in US trade policy under the new administration, including possible blanket tariffs that could weigh heavily on Peruvian exports. Meanwhile, private consumption – fueled by pension fund withdrawals, low inflation and improved employment – remains a significant growth driver. However, these factors are expected to diminish in 2025, despite a positive outlook for agricultural exports, particularly fruits. Infrastructure projects, such as the USD3.5bn Chancay Port developed by Chinese investors, are key to long-term economic dynamism and are aligned with government priorities to stimulate private investment and foster trade partnerships with Beijing and Asia-Pacific economies.

Peru’s business environment reflects a mix of opportunities and challenges. Macroeconomic stability and high-profile projects, such as the Chancay Port, have boosted foreign investor confidence thanks to the timeliness of their execution and the special relationship that Peru, along with the other Andean economies, continues to have with the other side of the Pacific. The mining sector continues to attract significant private investment, and improved business sentiment has been reported, aided by government efforts to promote investment-friendly policies.

Persistent political instability remains a significant challenge. President Dina Boluarte faces mounting corruption allegations, including cases related to human rights abuses in 2023 protests, illegal enrichment and cronyism. Although her administration is supported by a fragile coalition in Congress, impeachment attempts in 2025 are likely, especially as legislators will no longer risk triggering early elections by removing her. However, her removal appears improbable unless there is a substantial political realignment.

Rising crime and insecurity further weigh on Peru’s business outlook. Homicides increased by +22% y/y in 2024, highlighting growing challenges in public safety. Issues with informal mining operations persist, as evidenced by the government’s controversial extension of permits for informal mines, which business groups oppose. This extension underscores the delicate balance the administration faces between formalizing the mining sector and addressing social pressures.

The upcoming general elections, scheduled for 2026, will be pivotal, with fragmented politics likely delaying structural reforms. While a right-of-center candidate may have the best chance, political uncertainty is likely to deter investors in the interim. Nevertheless, Peru’s commitment to fiscal discipline, ongoing infrastructure projects and the resilience of private consumption and investment amid political instability provide cautious optimism for medium-term growth. Strategic economic relations with China, particularly in mining and infrastructure, will deepen, although this could exacerbate tensions with the US, adding another layer of geopolitical risk.