Is this the curse of commodities export dependence at work?
Peru’s gross domestic product expanded 5.0% in May, lower than the expected 5.5 to 6.0% growth, the government announced last week.
Barely two weeks earlier, President Ollanta Humala was remarking on Peru’s tripling of its GDP in the past 10 years.
Skipping over the observation that Peru’s 5.0% looks robust compared to the US first-quarter rate of 1.8% – the slowdown worries emerging market watchers because it may be a sign that the “curse” of commodities export dependence is at work.
Peru’s GDP growth has thrived through a decade-long commodities supercycle of record-breaking prices for natural resources. As our trade data indicates (see below), minerals, ores, and metals account for a big share of Peru’s exports – nearly three-quarters by value in 1Q13. Further, the supercycle has been driven by China’s demand for industrial raw materials. China was Peru’s biggest customer in 2012, accounting for 17.33% of its exports by value, according to the trade data.
It now seems that the supercycle is winding down – opinion differs on whether it’s coming to an end or just down-shifting for a bit – and the prices for Peru’s top exports are falling. There are indications, too, that the Chinese economy is flagging.
So, Peru can expect more disappointing results as two engines of its growth sputter?
Maybe not: With all exports accounting for 26% of Peru’s GDP (according to World Bank statistics), metals and minerals exports to China contributed about 3.8% of Peruvian GDP in 2012. The Peruvian government feels that strong domestic demand can make up for trade losses. (Indeed, Bloomberg reports, this has been the case so far.)
A report from Banco Bilbao Vizcaya Argentaria S.A. (BBVA), earlier this year – “How Dependent Is Latin America’s Economy on China?” – finds that while LATAM, Peru included, may have grown more dependent on China’s appetite for resources, Chinese demand for commodities has made only a minor contribution to GDP growth in these countries. (See the chart from the BBVA report below.) Much of the region’s economic dynamism has mostly been a function of domestic factors. Says BBVA: It’s too soon to conclude that China’s economic landing will drag down its trading partners.
In other words, there’s a chance that Peru will beat the curse of commodities export dependence. We’ll keep watching.
Datamyne covers more of the LATAM region’s import-export trade than any other source. Learn more about our coverage here.
