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Why is Peru’s economy not expanding at originally predicted rate?

parade-lima_30306_600x450On Tuesday, official data was released showing that as stronger mining activity offset a weak month for manufacturing, Peru’s economy expanded less than expected at 4.3% in August compared to the same month last year.

The month with the second slowest rate so far in 2013 has been August. 4.6% had been the forecasted growth according to economists polled by Reuters.

Economic growth has been dampened this year as a cause of weaker mineral prices and the softer demand from major buyers liked China of Peru’s metal industry as it is a top global producer of copper, gold, zinc and silver. This has led to the Latin American country’s first trade deficit in more than a decade this year. Another downfall to the Peru’s  economy this year has been a slight decrease in domestic demand which used to help offset weaker exports.

The expansion seen in August which grew by 7.9% compared to the same month of last year was led by the mining and hydrocarbons sector said INEI, the government statistics agency.

Construction activity rose 7.7 percent, sales 5.4 percent, financial services 8.3 percent, fishing 5.3 percent and transportation and communications 5.11 percent.

Manufacturing shrunk 1.2% this august, which usually figures heavily in Peru’s  Peru’s economy gross domestic product, due to weaker demand from abroad.

The economy grew 4.9% in the first 8 months of this year and 5.25% in the past 12 months through August, compared to the same periods of last year.

Usually Peru’s potential growth rate is seen between 6 and 6.5% at the rate in which the economy can expand without stoking inflation too much.

In the whole of 2013 the central bank now expects Peru to have 5.5% expainsion, as a decrease from an earlier estimate of 6.1%. At one of the fastest rates in the region, last years economy grew at 6.3%.

This has sparked the central bank to declare that it may lower the country’s potential growth rate from 6.4% to around 6.2%.

The unemployment rate in metropolitan Lima for the July through September period was 5.9 percent, INEI said.

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