Country Report Peru May 2000 Updater

Economic forecast: International assumptions

We expect 2000 to be the strongest year of the current global economic cycle, with demand high in the US and picking up in Asia and Europe, Peru's two other main export markets. World growth will remain higher than 3% throughout the forecast period. With commodity prices -- particularly those of copper and gold -- holding up over the forecast period, Peru's terms of trade will improve. The main risk to the forecast is a sharper than expected slowdown in US growth.

International assumptions summary (% unless otherwise indicated) 1998(a) 1999(b) 2000© 2001© GDP growth US 4.3 4.2 4.9 3.1 OECD 2.4 2.8 3.6 2.8 EU 2.6 2.1 3.0 2.7 Exchange rates US$ effective (1990=100) 119.3 116.3 115.9 110.9 ¥:US$ 130.9 113.9 108.0 105.0 US$:?(d) 1.12 1.07 0.99 1.09 Financial indicators US$ 3-month commercial paper rate 5.3 5.2 6.3 6.1 ¥ 2-month private bill rate 0.7 0.3 0.1 0.6 Commodity prices Oil (Brent; US$/b) 12.8 17.9 22.0 18.8 Gold (US$/troy oz) 294.1 278.8 290.0 300.0 Food, feedstuffs & beverages (% change in US$ terms) -13.9 -18.6 -2.1 4.9 Industrial raw materials (% change in US$ terms) -19.6 -4.3 17.5 9.4 (a) Actual. (b) EIU estimates. © EIU forecasts. (d) Ecu before 1999.

The world economy remains vulnerable to a sharp slowdown in the US, and the chances of this happening are worryingly high, owing to increased imbalances in the US economy (a wide current-account deficit and increasingly high levels of private-sector debt). However, we believe that the most likely outcome of the gradual monetary tightening by the Federal Reserve (the US central bank) will be a gentle slowdown of the US economy after peak growth of 4.9% in 2000. This will contribute to world growth of 3.7% this year (measured on a market exchange-rate basis), up from 2.8% in 1999. Japan is rebounding and is set to post its second consecutive calendar year of halting growth in 2000. The euro area is starting to grow more rapidly after a difficult 1999, and emerging-market economies are also picking up. We expect a slight slowdown in world GDP growth to 3.2% in 2001.

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