• Peru: Q1 national accounts reveal weak investment; surprise Cabinet changes


I. First quarter growth at a robust 3.8% y/y, but investment disappoints

The BCRP published the official breakdown for first quarter GDP growth. The aggregate growth figure, 3.8% y/y, was already known, but the breakdown by demand component is informative on a number of counts (table 1).

First, domestic demand, at 2.5% y/y, underperformed GDP growth significantly (chart 1). Thus, 6.2% y/y export growth gave support to GDP growth. Metals contributed a bit to this, but other drivers of growth were more important, including agro-industry, and the recent return of textile exports as an important component in exports.

Second, domestic demand would have been much lower if not for consumption, which surged 6.9% y/y. This was in line with consumer loans growth of over 16% y/y at the end of the quarter, which was possible because households had used their pension fund and CTS withdrawals in 2020–2021 to reduce debt, giving room for the current expansion in debt.

Third, robust consumption was in sharp contrast with investment. Private investment rose a paltry 0.8% y/y, and is likely to continue decelerating gradually, crossing into negative territory, in line with our expectations of -2% growth in full-year 2022 (chart 2). Public sector investment was even more dismal, falling 13.7% y/y, the second consecutive quarterly decline (chart 3). It is our contention that this reflects the government’s low investment capability.

Fourth, inventories also declined, down 3.0% y/y. It’s difficult to gauge to what extent this reflects greater demand than expected, as consumption growth would suggest, or caution on the part of companies in replacing inventories or ramping up production, given low business confidence.

The bottom line is: consumption remains surprisingly robust, even as investment decelerates quickly, in line with expectations. This in an environment in which exports are holding their own. Given this scenario, we are comfortable with our forecast of 2.6% GDP growth for the full year. The initial, and still weak, signs of a slowdown seen in Q1 are likely to become mildly more evident in Q2, with GDP falling below 3%.

II. President Castillo changes four of 18 Cabinet positions on Sunday, May 22.


  • Four new Cabinet members out of 18 total does not imply a major change in the agenda or performance of the Anibal Torres Cabinet (table 2).

  • The timing of the Cabinet changes came as a surprise, and the reasons for it were not clear.
  • One motivation may have been to preclude the removal of Ministers Carlos Palacios and Alfonso Chavarry, who were likely to face a Congressional procedure (interpelación) to that effect.
  • Three of the new Cabinet appointments are, hopefully, neutral to positive in terms of improving policy quality and consistency:

1. Alessandra Herrera at the Ministry of Energy and Mines replaces Carlos Palacios, who was widely seen as not being capable, or willing, to resolve the conflicts at mining operation, such as Las Bambas (copper).

2. Dimitri Senmache at the Ministry of the Interior replaces Alfonso Chavarry, who was being criticized for his role in implementing a curfew in Lima which led to marches and protests.

3. Juan Barranzuela at the Ministry of Transportation, who replaces Nicolás Bustamante, a person linked to the former Minister Juan Silva, who is under investigation for malfeasance.

  • The most hopeful change, perhaps, is Minister Herrera at Energy & Mining, as she appears to be both more experienced and more capable than her predecessor. Minister Herrera is a lawyer with experience in mining and environmental legislation as well as community administration. Given her experience she is likely to be focused on resolving social conflicts surrounding mining operations in a way that former Minister Palacios never was.
  • Note, however, that this is the fourth change at the Head of the Ministry of Energy & Mines during the Castillo Regime, which is an additional source of uncertainty.
  • The appointment which has raised eyebrows is that of Juan Arce at the Ministry of Agriculture, as he has no experience relevant to his new Cabinet position. The designation of Minister Arce, who is currently a member of the Andean Parliament in representation of Perú Libre, appears to be a concession to the Perú Libre party.
  • With these new designations, President Castillo has changed Cabinet members 36 times in the ten months he has been in office. This continues to affect policy continuity and stability.
  • The change of Cabinet members at risk of removal by Congress seems to have become part of the government’s modus operandi, possibly in order to avoid the government from being put “on trial” by proxy, or perhaps to avoid giving the opposition in Congress what could be viewed as a victory.

—Guillermo Arbe


This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.

These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.

Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.

Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.

This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.

™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.

Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.

Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.

Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.