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Peru to grow 6.0% in 2012, leading the pack in Latam

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Peru to grow 6.0% in 2012, leading the pack in Latam PART 1 OF 1

Peru to grow 6.0% in 2012, leading the pack in Latam

Peru to grow 6.0% in 2012, leading the pack in Latam

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Inflation is a key indicator for investors in country ETFs since central banks generally use interest rates as a mechanism to promote growth, in the case of interest rate decreases, or to curve inflation, in the case of interest rate hikes. The local equities markets reacts accordingly based on the projected rate of growth in the economy.

Peru’s Central Bank released the latest inflation report, revealing that while inflation is at 3.7%, inflation excluding fuel and food is at 2.1%, which is right in the middle of its 1-3% target range. From the consumer point of view this may not reassuring; we all eat and depend on fuel for transportation, but from the business perspective avoiding inflation on raw materials and other non-food and non-fuel products means costs are kept down and margins are not threatened by inflation.

The report also mentions that Peru’s GDP grew 6.1% in the first half of 2012, which led its central bank to increase their 2012 full year GDP growth forecast to 6.0% from the previous 5.8%.  While in earlier years this number would have been considered average, the current macroeconomic conditions have slashed the growth prospects of several emerging markets.  Within Latin America, the Brazilian Central Bank recently cut its 2012 GDP growth projection to just 1.6%.  The Mexican government stated that it expected growth of 3.5% for 2012, much lower than Peru.  Earlier this year the Colombian Central Bank estimated that its country’s GDP would grow between 3.0 and 5%, with guidance towards 4.0%. A neighbor that comes close but not ahead of Peru is Chile, whose October Economist Survey projected a 2012 GDP growth rate at 5.0%.

Investors interested in the region should recognize that GDP growth and inflation are key macroeconomic variables that can be used to choose which market to invest in.  Given the low growth rates in the more popular markets like Mexico and Brazil, diversifying into ETFs covering other countries, such as Chile (ECH), Colombia (GXG) and Peru (EPU) can expose the portfolio to economies with better market conditions that will ultimately be reflected in the stock market.

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