Political focus shifts to elections; real GDP growth forecast trimmed; local bond prices expected to slide in H2
In this forecast, we examine prospects for the July 2026 general elections, and how the economy is likely to respond. In the first section, we focus on the electoral calendar and the candidates, and try to predict the winner of the presidency. It is too early for our analysis to be anything other than speculation, but we believe the trends point to a leader from the center right.
In the subsequent section, we share our forecasts on future economic performance. We argue that, while the economy surprised to the upside in Q1 2025, this level of performance is unlikely to extend into H2 2025, or 2026. We’ve revised down our real GDP growth forecast to 2.7% for 2025, and to 2.6% for 2026. We then discuss fiscal policy, and argue that the government is poised to expand expenditure ahead of the elections. We have accordingly revised up our fiscal deficit estimates to 2.9% of GDP for 2025, and to 3.4% for 2026. Our external accounts forecast is more positive. We expect the surplus on the current account to continue into 2025 and 2026 and, while capital inflows should ease, the balance of payments surplus will persist.
We also discuss our views on asset prices. Although we continue to forecast a long policy pause by the Board of the Banco Central de Reserva del Perú (BCRP, the central bank), much depends upon domestic and global drivers of uncertainty and market volatility. The outperformance of inflation and the currency are major tailwinds, but the election and the global trade war are strong opposing headwinds. We expect the strength of the currency to be sustained through 2025, but see a depreciation at the height of electoral campaigning in H1 2026. Similarly, we foresee higher yields in Soberanos and Global bonds, pricing in additional risk and the strong supply of bonds.
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