July 18, 2016 / 10:10 PM / 3 years ago

Peru economy vulnerable to global headwind -next finance minister

LIMA, July 18 (Reuters) - Peru’s economy was “very vulnerable” to global headwinds despite a mining-driven recovery, the incoming finance minister said in an interview broadcast on Monday, citing Brexit as a new threat to growth and inflation.

Alfredo Thorne, a former director at JPMorgan Chase, said President-elect Pedro Pablo Kuczynski’s government would work to bolster sectors that are not tied to commodity cycles to reduce risks in the global minerals exporter.

“Brexit is a complicated global issue and has economic edges that are clearly going to hit us because of commodity prices,” Thorne said in an interview with broadcaster RPP.

“Today with the result of Brexit there’s a sense that we could see a new inflation slowdown, and there’s more concern of seeing deflation than 6 months ago,” Thorne said.

Kuczynski’s government takes office on July 28.

Peru has one of the most robust economies in Latin America, with inflation cooling to the upper limit of the central bank’s 1-3 percent target range and surging copper output from new mines driving a recovery.

Peru’s annual growth rate firmed to 4 percent in May for the first time since 2014, prompting the outgoing government of President Ollanta Humala to say it was leaving the economy at “cruising speed” for the next administration.

Thorne disputed that, forecasting a slowdown in 2018 when Peru’s copper boom is expected to subside unless more is done to boost domestic demand and spur private investments that have fallen for several quarters.

“We see the economy as weak and very vulnerable. A large part of growth is coming from the mining sector, not from demand,” Thorne said.

Thorne said he would work to push out an estimated $60 billion in stalled private investments, for irrigation canals to an expansion at the airport in Lima.

The central bank has estimated inflation will cool to 2.9 percent by the end of the year before reaching its goal of about 2 percent in 2017. It has not flagged any concerns about deflation in the horizon. (Reporting By Teresa Cespedes, Writing by Mitra Taj; editing by Grant McCool)

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