OECD Economic Outlook, Volume 2026 Issue 1

GDP is projected to grow by 2.9% in 2026 and 2.9% in 2027, down from 3.4% in 2025. Activity is supported by resilient domestic demand, particularly private consumption and investment, and favourable terms of trade. Growth remains solid in 2026 despite supply‑side disruptions including an El Niño-related impact, domestic gas supply constraints and higher energy prices linked to the evolving conflict in the Middle East. Inflation is projected to rise temporarily above the Central Bank’s target range, before returning towards target as supply shocks fade.

A neutral monetary stance remains appropriate, given anchored inflation expectations and price pressures driven mainly by temporary supply shocks. Fiscal policy should shift to a credible, rule-consistent consolidation path by improving spending efficiency, avoiding unfunded permanent spending increases and raising permanent revenues. Enhancing regulatory predictability and speeding up permitting would support investment and productivity.

GDP grew by 3.4% in 2025 and the pace of growth remained stable at 3.5% in the first quarter of 2026, supported by strong private consumption and a sharp rise in investment. High-frequency indicators suggest year-on-year growth remained above 3% in April, with capital goods imports and construction indicators pointing to continued investment strength, even as business expectations softened somewhat. Labour-market conditions remain supportive, with a strong expansion of formal employment (5.7%) and average nominal earnings (8.2%) in March. Headline inflation rose to 4% year-on-year in April, driven by higher fuel prices, temporary disruptions to domestic gas supply and adverse weather effects feeding through into higher food prices. Core inflation rose to 4.4%, reflecting temporary pass-through from higher fuel and gas costs into transport and other core prices, rather than domestic demand pressures.

External conditions remain mixed but broadly supportive. The 10% baseline United States tariff on most Peruvian exports remains in place, but key mining exports remain exempt. Copper prices remain historically high, helping sustain export earnings, and goods export volumes rose modestly in the first two months of 2026, with gains in both traditional mining exports and non-traditional products. At the same time, the temporary interruption to domestic gas and natural gas liquids supply in March, together with higher oil prices linked to the evolving conflict in the Middle East, raised energy costs and added to fertiliser price pressures.

The central bank kept the policy rate at 4.25% in May. One-year ahead inflation expectations have edged up to 2.8% in April but medium term inflation expectations remain broadly anchored. The projections assume that the policy rate will remain unchanged at 4.25% through 2026-27, with recent price increases driven mainly by temporary supply shocks. Should inflation prove more persistent, a tighter policy stance would be required to ensure convergence towards target. Fiscal policy will continue to provide support to activity over 2026 and 2027. However, the fiscal stance remains too accommodative given solid growth and past improvements in the terms of trade. The projections assume a fiscal deficit of 2.0% of GDP in 2026 and 1.8% in 2027, which is above the consolidation path implied by the fiscal rule. No major new broad-based measures to cushion higher energy prices are assumed. Existing measures, mainly targeted LPG subsidies for vulnerable households and fuel price stabilisation mechanisms remain modest.

GDP growth is projected to ease to 2.9% in 2026 from 3.4% in 2025 and remain at 2.9% in 2027. Private consumption and investment will remain the main drivers of activity, despite the inflation uptick, supported by solid labour income growth, favourable metal prices and continued strength in construction. Growth in 2026 will be held back by temporary supply disruptions, including El Niño-related effects, domestic gas shortages and higher oil prices linked to the evolving conflict in the Middle East, as well as by weaker external demand and election-related uncertainty weighing on investment. Inflation is projected to rise temporarily in 2026 as higher energy, food and fertiliser costs pass through, but then ease as these shocks fade. Risks are tilted to the downside. Renewed social conflict affecting mining investment, stronger weather-related disruptions, higher energy prices or shortages of mining inputs could weaken growth and increase inflation. Fiscal risks stem from recent unfunded permanent spending measures. These could weaken the credibility of the fiscal framework, but low public debt, ample reserves and credible central bank provide important buffers.

A credible return to the fiscal rule is needed to preserve hard-won macroeconomic stability. This requires improving spending efficiency, resisting unfunded permanent spending increases and strengthening revenues through a broadening of the tax base, so that social and productive priorities can be financed without putting debt sustainability at risk. Strengthening energy security through a more diversified energy mix, more reliable domestic gas supply, after recent supply disruptions exposed dependence on a few critical assets, and stronger contingency planning would reduce exposure to external shocks. Lowering regulatory barriers to mining, infrastructure and other private investment would also support productivity, resilience and stronger medium-term growth.