Peru — Challenges balancing the economic and public health crises

Peru has suffered a deep economic contraction amid strict COVID-19 containment measures (Chart), including a three-month stay-at-home order only now being eased. But relatively strict lockdown measures have yet to control the spread of the virus. Peru has the seventh-largest number of cases in the world as of July 27, 2020. Given the pandemic is still not under control and authorities are gradually easing restrictions, infections could further rise.

As in every country, authorities face the difficult balancing act of reviving the economy and managing the public health crisis. More than half of Peru’s non-agricultural workforce is employed in informal jobs; these workers can’t stop work without losing their only source of income. The lack of social safety nets, such as unemployment insurance, compounds the issue. Crowded urban neighbourhoods, high incidence of poverty and low investment in public health facilities adds to the challenges in containing the virus.

Peru’s share of Australian exports is small. Foreign direct investment opportunities—particularly in mining, oil and gas and water—are larger, amounting to more than $300 million in 2018-19. The pandemic may slow investment in the short term, but may also highlight new opportunities, particularly in mining services. The Peru-Australia Free Trade Agreement which recently entered into force also removes trade and investment barriers.

On the positive side, demand-supply dynamics are contributing to rising copper prices, which reached US$6,500 per tonne in mid-July, the highest level since April 2019. Some copper mines are yet to reach full capacity in Peru (and Chile)—the top two copper producers in the world—due to COVID-19 related risks, raising concerns about global copper supply. As the world’s sixth largest copper producer, rising prices are projected to boost Australia’s copper export earnings to $9.9 billion in 2021-22.