Peru GDP (Essay Sample)

Peru GDP
Abstract
In this essay, the trends in the overall economic growth of Peru are examined by analyzing the trends in GDP and the other economic variables. The analysis show declining trends in GDP growth from 1999 to 2013 mainly driven by weakening private consumption growth, stagnating investment and declining exports. The analysis shows the need for structural transformation in the country for removing the binding constraints to growth especially for improving investment and export performance.
Introduction
Peru is one of the fast growing countries in Latin America. In this essay, the trends in different economic relationships related to Peru's GDP and the economy of the country are examined statistically. These trends are interpreted here and thus the relationships are examined statistically.
Trends in the Economic Variables
The following figure shows the trends in the nominal economic variables GDP, Private Consumption(C), Gross Private Domestic Investment (I), Government Consumption Expenditures (G) and Net Exports(X-M). It shows that while nominal GDP and private consumption shows rising trend from 1999 to 2013, the variables G and I show a stagnating trend.Net Exports also show stagnating trend and is negative which means that imports are higher than exports in the period of analysis. Figure 2 shows the trends in the real variables deflated by implicit GDP price deflator. The trends in the real variables also show similar trend. Based on the expenditure approach of calculating GDP, the Gross Domestic Product (GDP) is equal to the sum of consumption, investment, government expenditures and net exports (Dornbusch et al, 2011). The consumption demand mainly drives the GDP in Peru, as shown from the above figures while the investment, government expenditures and external demand show stagnating trend in Peru. This shows an indication that the upward trend in the levels of nominal and real GDP is mainly driven by the rise in private consumption demand. However, a complete picture in this regard is obtained only after examining the trends in the economic growth performance in the country. These trends are also analyzed for the different economic variables in the country. The next section examines the trends in the overall growth performance and the trends in the growth rates of different variables in real and nominal terms.
Figure1: Trends in Nominal Variables


Figure 2: Trends in the Real Variables


Trends in Growth Performance
Figure 3 show the trends in the overall growth performance and the trends in the growth rates of different variables in real terms. The trends show that the overall GDP growth rate shows a declining trend from 4.09 % to 1.86 % over 2000 to 2013. This trend reflects the declining trend in the private consumption growth rate. The investment growth rate shows an overall stagnating trend in the entire period of analysis. After recovering from negative growth rate from 2010, however, investment growth rate again declines afterwards. Government expenditure growth rate shows declining trend reaching negative growth rate from 2010 onwards. Net exports growth rate also show a declining trend in the period of analysis. Thus, the overall economy is showing a declining growth in the country, which mainly reflects the declining growth of private consumption, stagnating growth in investment and the declining exports. The stagnating growth in investment is surprising, in spite of the fact that the country is a natural resource abundant one ( Loman, 2011). The main reasons, which are cited in the literature that contributed to the declining exports in Peru, include unstable prices, adverse economic shocks, trade policies of the government that are counterproductive and the factor related to climate change (Sheahan, 1999). The trends in the three indicators namely private consumption, gross private domestic investment and net exports are examined in detail in the next sections.
Figure 3: Trends in the Growth Performance


Private Consumption
Figure 4 shows that services sector consumption constitutes the majority of real consumption expenditures in Peru from 1999 to 2013. The growth rate of real services consumption expenditure declines from 4.99 percent in 2000 to -5.58 percent in 2013 while that of goods decline from 5.8 percent in 2000 to -11.29 percent in 2013. This decline in the consumption expenditures is contributed to the factors including the global recession and the consequent reduction in disposable income and spending power as well as the reduction in the consumer confidence due to the deteriorated economic climate worldwide following the global economic recession ( Pwc.com, 2011). However, the quarterly data from 2010 to 2013 shows that private consumption growth rates are recovering slightly, which might be due to the improvement in the consumer confidence and the rise in the disposable income levels, following recovery from the global economic recession .
Figure 4: Components of Private Consumption Expenditure in Peru


The next section discusses the gross private domestic investment trends in detail.
Gross Private Domestic Investment
One of the main volatile domestic spending components in Peru for many years had been the private investment, which was found very sensitive to terms of trade changes and the external sector conditions (PWC.com, 2011). The following figure shows the components of gross private domestic investment in Peru from 1999 to 2013. It shows that fixed investment constitutes the majority of the private domestic investment there while private inventory changes only constitute a minor portion. Among the fixed investment, data shows that residential investment constitutes the major part. Thus, the stagnating investment can be mainly contributed to the trends in fixed investment mainly the residential sector investment in the country. The stagnating trend in Peru is unlike the trends in many other Latin American countries where private domestic investment, particularly in equipment, machinery and residential structures is found as a major contributor to high economic growth for a long period ( Gutlerrez, 2005). Due to the high sensitivity of the investment to terms of trade in Peru, the terms of trade shocks and the absence of significant structural transformations can be considered as a major reason for the stagnating domestic investment in the country for a long period. Moreover, the reasons for the stagnating domestic investment are cited as the low expected rates of return as shown by the sensitivity of investment to the changes in interest rates in the economy (Hausman and Klinger, 2008). Given the decline in the GDP growth rate in Peru in the period of analysis, this shows the need for improving the private domestic investment for improving the overall growth performance in the country. This shows the need for structural transformation in the country for improving the terms of trade conditions and thus the domestic investment and thus making it a significant contributor to the overall economic growth in the country.
Figure 4: Components of Private Domestic Investment in Peru


The next section discusses the trends in the net exports in the country in detail.
Net Exports
Figure 5 shows that the growth rates of both the exports in Peru show declining trend in the period 1999 to 2013.After declinining significantly in 2008, the growth rates, however, r started recovering in 2009, but again declined from 2010 onwards.The main reasons for the declining exports are cited in the literature as the following. There was no change in the export activities of Peru for decades,whi...