Chile and Peru Economies are Benefitting from Low Oil Prices
Graphics courtesy of istockphoto.com
Peru has experienced strong economic growth during the past five years, making it one of the fastest-growing economies in Latin America.
This has been mainly due to Peru’s open market strategy, which has established new free trade agreements with 38 countries, including the Association of Southeast Asian Nations (ASEAN), China, European Union, and NAFTA countries. In addition, Peru is negotiating trade agreements with nine other countries, including Australia, New Zealand, Thailand, and Turkey.
Nearly 95% of Peru’s exports are covered by free trade agreements.
Peru is the world’s third-largest producer of copper, zinc, and silver. Its economy is highly dependent on mining and vulnerable to the vagaries of volatile commodity prices.
Peru’s President Pedro Pablo Kuczynski, who formally took office on July 28, 2016, has introduced a broad agenda of policies to stimulate economic activity to offset the decline in commodity prices, which is closely related to the economic slowdown in China, one of Peru’s main trading partners.
The non-mining sectors of the economy are stagnant due to weak domestic demand and depreciation of the Peruvian currency, the sol, against the U.S. dollar, which has increased the cost of imported products.
In terms of the automotive market, total vehicle sales peaked in 2013 at 201,326 units. It declined to 187,061 sales in 2014, and declined again in 2015 to 172,503 sales.
“The fleet market in Peru for 2016 is forecast to be around 10% of total automotive sales of 171,000 units, which is a decrease from 2015,” said Marcelo Tezoto, South America fleet sales development manager for GM.
The economy of Chile is ranked as a high-income economy by the World Bank, and is considered one of South America’s most stable and prosperous nations. However, current economic conditions are putting a drag on overall growth in Chile. One headwind slowing economic growth in Chile is low consumer confidence and a depreciation of the Chilean peso versus the U.S. dollar, which has driven up the cost of imported goods, in particular automobiles. Chile does not manufacture vehicles domestically.
One silver lining offsetting the slowness in the Chilean economy has been low oil prices, which has helped to keep the current-account deficit manageable.
The mining sector in Chile is one of the key pillars of the Chilean economy. Chile has huge copper reserves, producing more than one-third of all global copper output. Chile is very dependent on resource and mineral extractions to be sold in the export market, which has witnessed a decline in demand and subsequent softening of commodity prices.
“There has been a decrease in pickup segment sales, due to the decrease in the economic activity in the mining sector,” said Tezoto.
The Chilean government strongly supports foreign investment in the mining sector and has modified its laws and regulations to create a favorable investing environment for foreign companies.
Sales of new vehicles in Chile are forecast to slump, shrinking around 16% in 2016 as confidence and growth remain subdued, according to a report by the Asociación Nacional Automotriz de Chile (ANAC).
After automotive sales declined 16% in 2015 to 282,232 units, annual sales of cars in 2016 are forecast to increase to around 290,000 units.
The top-selling car brands in Chile are GM’s Chevrolet, Hyundai, and Kia.
Editor's note: This article first appeared online in the Q3 Global Fleet Market Conditions supplement published in October of 2016.