Consumer spending rises in Peru.

Peru's consumers are in an increasingly favorable position. The country's economy is doing well--has been doing well for some time--and the free market policies of Peru's new president appear to be having a positive effect.

Here's what the Central Reserve Bank of Peru (BCRP) had to say in its September 2007 review of the economy, which cited several factors underlying GDP growth. "Particularly, private consumption and private investment have maintained a high pace of growth, reflecting the optimism of consumers and business in a context of high growth of national disposable income, high prices for our main export commodities, and the low cost of credit."

On this last point, credit, the BCRP reports that consumer loans, "increased by 38.6 percent between August 2006 and August 2007."

The impact of the availability of this much credit shows up in statistics that reflect consumer behavior. For example, durables imports increased from us$514-million in the first half of 2006 to us$635-million in the first half of 2007. This represents an increase of 23 percent.

Similarly, unit sales of "family vehicles" increased from 8,655 for the first half of 2006 to 12,676 for the first half of 2007. This is an increase of 46 percent.

In regard to vehicle sales, one caveat is that Peru has one of the lowest rates of cars per capita in the Latin American region. Still, these two benchmark statistics--durables imports and vehicle sales--are impressive indicators of strong consumer spending.

At the end of 2006 and the beginning of 2007, Peru's consumer confidence index reached highs that are records for the BCRP's current reporting period (first quarter 2003 through the third quarter 2007.) Confidence fell from the record high in the first quarter 2007 of 57 points, (tieing the record set in the third quarter 2006) to 49 points.

Observers feel that the decline has less to do with Peru's economy than consumer worries about the impact of the slowing global economy.

Overall, there is little doubt that Peru's macroeconomic situation is maintaining good momentum with an International Monetary Fund (IMF) estimate of 2007 GDP at 7.0 percent. This is lower than the BCRP's forecast of 2007 GDP of 7.6 percent, revised upward from 7.2 percent earlier in the year.

On September 21, 2007, the IMF released a statement from its president in regard to his recent visit to Peru. "Economic growth in Peru has been among the strongest in Latin America--while inflation is well contained below official targets, the external position is solid, and vulnerabilities, particularly those related to dollarization, are declining."

In spite of Peru's evident progress, poverty remains intractable. Half the population lives below the poverty line.

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