Peru's economy will grow by 3.5-4.0 percent in 2016, as the coming on line of huge new mines counters the impact of a slump in the price of copper, the country's Finance Minister Alonso Segura said on Thursday. Speaking to Reuters on the sidelines of the World Economic Forum in Davos, Segura said the massive Las Bambas mine has already shipped its first cargo, though commercial production would start in March.
Peru, the world's third-largest copper producer, expects to see output rise 66 percent in 2016 to about 2.5 million tonnes after MMG Ltd's Las Bambas starts, but the country faces tough times as copper prices have fallen to 6-1/2-year lows. "We have very low costs of production. Even at these prices, it is unlikely that mines in Peru will stop producing," Segura said, adding that the sheer increase in output volumes would counter the impact of lower copper prices.
While economic growth may fall short of the original 4 percent forecast, Segura said big infrastructure projects would provide support, while copper output is expected to increase at a double-digit annual pace in the next three years. "Our growth in 2016 should be in the region of 3.5-4.0 percent, the economy has digested the shock." Overall 2015 growth could have reached 3 percent, Segura said, noting that recent data had shown a faster-than-expected 3.96 percent expansion in November, as copper and fishing output surged.
However Peru has budgeted for a copper price of $2.35 per pound in 2016 and Segura admitted further price drops for the metal could force a review. It reckons on a 10-year average price of $2.98 while current prices are around $2. "The latest drop could imply a slightly higher budget deficit.. We may have to make some adjustments, adjust (copper price), downwards of course," he said.
Peruvian exporters are benefiting from a weaker currency, with the sol having fallen 15 percent against the dollar last year. The central bank regularly intervenes to smooth out sol swings but Segura said the bank was "not fighting hard" to stem the pace of depreciation.
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