Peru's Resilient Recovery: Navigating Growth and Risks in Emerging Markets

Peru's economy is emerging as a compelling case study in resilience, with the Central Bank of Peru (BCRP) projecting Q2 GDP growth “slightly above 3.0%” and a full-year 2025 forecast of 3.1%. This optimism is rooted in strong sectoral performance, anchored inflation, and fiscal adjustments. Yet, risks—from political fragmentation to environmental challenges—demand careful navigation for investors seeking to capitalize on the country's risk-reward profile.

Growth Drivers: Mining, Consumption, and External Strength

Peru's economic momentum is underpinned by mining-led primary sectors and a rebound in domestic consumption. In April 2025, mining activity surged by 1.4% year-on-year, offsetting declines in fishing and agriculture. The non-primary sector, including trade and services, grew by 1.7%, driven by robust retail sales and logistics activity. May's data reinforced this trajectory, with imports of consumer goods jumping 15.5% and capital goods imports rising 24.1%, signaling renewed confidence in private investment.

The external sector adds stability: Peru's current account surplus is expected to reach 1.7% of GDP in 2025, supported by strong commodity exports and robust foreign reserves ($79.2 billion in 2024). This buffers against external shocks, such as potential U.S.-China trade tensions.

Inflation and Monetary Policy: Caution Amid Stability

Inflation remains well-contained, within the BCRP's 1-3% target band, aided by past monetary tightening and forward guidance. The central bank has maintained its policy rate at 4.50% since June 2025, pausing its easing cycle to balance cooling inflation with growth needs.

While the BCRP's stance is neutral, data-dependent adjustments could follow. A would highlight the bank's success in aligning monetary policy with price stability.

Fiscal Challenges: Petroperú's Crisis and Structural Reforms

Peru's fiscal health faces a critical test from the $6.5 billion Talara refinery project, which left state-owned Petroperú drowning in debt. Two 2024 bailouts totaling over $1 billion and direct debt assumption by the government underscore the fiscal burden. The IMF warns that further bailouts could derail Peru's goal of reducing the fiscal deficit to 2.2% of GDP in 2025 and capping public debt at 30% of GDP by 2035.

However, the government has committed to structural reforms at Petroperú, including cost-cutting and governance overhauls, while pushing tax administration upgrades to bolster revenue. Success here would free fiscal space for growth-enhancing investments.

Investment Opportunities: Mining and Agriculture Lead, but Diversify

Mining remains the cornerstone of Peru's economy, accounting for nearly 60% of exports. With global demand for copper—vital for EVs and renewables—expected to grow, Peru's status as the world's second-largest copper producer positions it as a beneficiary of the energy transition.

Agriculture offers another growth vector, supported by rising consumer imports and strong farming output. However, weather-related risks (e.g., recurring wildfires) and logistical bottlenecks require caution.

Risks: Political Fragility and Environmental Headwinds

Peru's political landscape remains fractured, with low public approval of President Dina Boluarte and frequent leadership changes complicating policy execution. Meanwhile, environmental opposition to Petroperú's Amazon oil projects and social unrest over resource extraction threaten long-term growth.

Geopolitical risks, such as a U.S.-China trade war, could also disrupt Peru's export-driven economy.

Recommendation: Balance Exposure with Caution

Investors should prioritize diversified equities in mining and agriculture, leveraging Peru's commodity strengths while mitigating sector-specific risks. Sovereign bonds offer stability, given the country's strong reserves and current account surplus. However, a comparison should guide allocations, as geopolitical tensions may compress spreads.

For equity investors, a focus on companies with global supply chain ties (e.g., copper miners with EV contracts) or resilient consumer-facing businesses could enhance returns.

Conclusion

Peru's 3%-plus growth trajectory, anchored inflation, and robust external sector create a compelling risk-reward proposition. Yet, fiscal discipline at Petroperú and political stability are critical. Investors should proceed with a barbell strategy: allocate to high-conviction mining and agricultural plays while using sovereign bonds as a hedge against volatility. In an era of global uncertainty, Peru's fundamentals merit attention—but with eyes wide open to its risks.