Courtesy of the Financial Times, a report on Peru’s economy:

In less than 24 hours Peru’s economy – once feted as Latin America’s star and now struggling with a slowdown – suffered two blows. First, on Sunday evening, the surprising loss of its respected finance minister, Luis Miguel Castilla. Then, on Monday morning, the announcement that the Andean country’s gross domestic product grew below expectations in July.

Peru’s national statistics institute said the economy accelerated a meagre 1.16 per cent from the same month last year. This still means 60 months of continuous growth and an improvement from June, when Peru’s GDP growth nearly came to a halt, expanding just 0.3 per cent compared with a year earlier.

The world’s third-largest copper producer has been hit by tumbling investments, lower earnings from mineral exports caused by weaker prices and softer demand from Asia. “An inflection point is observed, with the lowest point in June,” Alejandro Vilchez of the state statistics agency told reporters in Lima on Monday, blaming the behaviour of manufacturing and mining on an “unfavourable” international context.

Vilchez’s comments could imply that now starts a long-awaited recovery from the worst economic deceleration in five years. Officials, including the exiting minister Castilla, have insisted the economy would rebound in the second semester. Notwithstanding, analysts had expected a 1.95 per cent acceleration in July. According to a Monday report by Scotiabank, Peru’s “economy is giving mixed and complex signals”.

For the incoming finance minister, Alonso Segura – who was sworn in on Sunday night vowing to strengthen recent reforms aimed at jumpstarting growth and who analysts expect to continue with his predecessor’s policies – Peru’s economy would likely expand by less than 4 per cent this year. This may be a fair rate, but far below annual average growth of above 6 per cent in the past decade.

Last Thursday, Peru’s central bank lowered borrowing costs for the second time in three months by a quarter-point to 3.5 per cent. As Bank of America Merrill Lynch said in a note the following day:

We believe BCRP’s [the central bank] decision to cut is a sign that the central bank is increasingly concerned that the slowdown may be much deeper than it expected . . . We now estimate a 25% probability that Peru has entered into a recession . . . In such a scenario, price pressures would wane, import demand would contract, the current account deficit would fall, and the central bank would have more room to let the currency float. Were this to happen, we would expect a continued loosening of monetary policy. While this is not yet our baseline scenario, we note that a recession would not be surprising given the fact that exports have dropped by nearly one fifth over the past two years.

The new minister will definitely have some steering to do.