(Adds central bank's revised potential growth rate, details)
By Patricia Velez and Teresa Cespedes
LIMA, July 18 Peru's central bank slashed its
view of this year's economic expansion to 4.4 percent from 5.5
percent in a quarterly report on Friday, forecasting a drop in
mining activity and a ballooning trade deficit.
The central bank's new outlook for this year's expansion
maintains its view that economic activity will pick up in the
second half of 2014. Growth posted so far this year, between
January and May, was 3.57 percent compared with the same period
Growth expectations for Peru, one of Latin America's most
robust economies, have dimmed because of weaker prices and
softer demand for its mineral products.
The Andean country's economy surged at rates topping 6
percent on the back of the global commodities boom during most
of the past decade.
A 4.4 percent growth would be its weakest since 2009, when
it stumbled as a result of the global financial crisis.
Last year Peru's economy grew 5.8 percent.
The central bank said it now sees a 6 percent expansion
instead of 6.7 percent in 2015.
Central Bank President Julio Velarde said at a news
conference on Friday that the central bank now sees Peru's
potential growth rate - the pace at which the economy can expand
without stoking inflation - at no more than 5 percent.
The central bank previously considered that rate 6 percent.
Last week the central bank lowered the benchmark interest
rate to encourage growth, its first cut since November. The
monetary authority has said it could reduce the key rate further
if the economic lull drags on.
Sluggish growth threatens to slow the steady retreat of the
poverty rate in recent years, and comes as President Ollanta
Humala faces the lowest approval ratings of his three years in
Last week, Humala announced plans to introduce another
economic reform package that will build on recently passed
measures to cut red tape and lure mining investment.
The central bank said mining activity is set to shrink 1.1
percent this year and mining investment 4.3 percent, likely
leading to bigger current account and trade deficits.
The central bank's updated view for a $2.6 billion trade
deficit this year is nearly triple its April estimate.
Peru is a top producer of copper, gold and silver. Mining
makes up nearly 15 percent of GDP and about 60 percent of export
Domestic demand, which has cushioned tumbling exports in
recent years, will likely grow by 4.7 percent this year, the
bank said. Private investment will likely rise 3.2 percent.
Velarde also said that the bank has raised its view of
inflation for 2014 to 2.8 percent from 2.5 to 2.6 percent -
within its 1 percent to 3 percent target range.
The central bank also raised its view of this year's current
account deficit to 4.8 percent of GDP from 4.3 percent, and
trimmed its view of this year's fiscal surplus to 0.2 percent of
GDP from 0.3 percent.
(Reporting by Patricia Velez and Teresa Cespedes; Editing by