Peru Leads Global Economic Crash With 30.2% Quarterly Drop

(Bloomberg) -- Peru's economy collapsed at a record pace in the second quarter as the pandemic shuttered businesses and put almost half the country's urban population out of work.

Gross domestic product plunged 30.2% from a year earlier, the deepest slump of any major economy, the country's statistics agency said Thursday. It follows a 3.5% drop in the first quarter, putting the economic officially in recession, and one that the World Bank expects to be among the deepest anywhere this year.

One the region's strictest lockdowns brought much of the economy to a virtual standstill in mid-March. While industries such as mining and fishing rebounded quickly after the government eased restrictions in May, service and retail sectors are lagging and many of the small companies that make up the backbone of the economy have gone bankrupt.

“It's not so easy for economic activity to return when you've had such a brutal drop,” said Miguel Jaramillo, a researcher at Grade, a Lima-based think tank, before the report's release. “Many companies have folded, and they're going to keep folding. It's naive to think we've touched bottom.”

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Peru's hospitality industry, which has been hardest hit by the pandemic, contracted almost 90% compared with the same quarter of last year, while construction plunged 67%. Retail dropped 45% and mining fell 37%, the report said.

The number of people in active employment plunged by almost 40% from a year ago, and dropped by almost 50% in towns and cities, the agency said last week.

“Activity bottomed in April and slowly recovered in May and June, but remains well below its level prior to the outbreak and the year prior. Recovering external demand and higher copper and gold prices should provide some relief, but policy makers will have to be more effective implementing stimulus measures.”

-- Felipe Hernandez, Latin America economist with Bloomberg Economics

The government approved 128 billion soles ($35.8 billion) of economic measures, including tax relief and cheap loans, to mitigate the lockdown's impact. Finance Minister Maria Antonieta Alva said this week the measures will prevent the economy slumping more than 20% this year. The World Bank forecasts a 12% drop in Peru's GDP.

Peru has one of the highest virus death and case counts after easing stay-at-home restrictions in much of the country of almost 33 million last month led to a resurgence in infections.

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