[OPINIÓN] Carlos Barodi: Can the Peruvian Economy Reactivate? | Economy | State | Consumption | Comment

The Peruvian economy is experiencing a recession. Production has been falling (the latest figure shows a 0.63% drop between January and September compared to the same period the previous year), leading to very limited job creation and an increase in poverty. The question is how to recover from recession? Below I share some ideas.

First, every economy has four engines: private consumption, public spending, private investment, and exports. The provision or, in simpler terms, the expenditure of one which promotes the production of another; For example, if more water bottles are purchased, more water bottles will be produced. Higher productivity means both higher employment and higher tax collections.

Second, private consumption accounts for 65% of domestic demand; private investment, 20%; and general expenditure, 15%. Personal consumption is made up of the expenditure that we all make to meet personal or family needs. They range from candy to cars. The key is there.

Third, if private consumption is to increase, that is, if citizens are to spend more, we first require that they have more money to do so; But to have more money, they need better jobs. Who provides those jobs? Who hires them, whom we call entrepreneurs, entrepreneurs, investors or similar nouns.

Fourth, it means that if investment does not increase, employment cannot grow because it is not created by mandate. Investment can be 20% public investment and remaining 80% private.

Fifth, the previous sequence shows that the key to a return to growth is increasing private and public investment. The second is in the hands of the government; The first depends on expectations; Because? Because invest only if you or I expect to sell what you are going to produce. We have to believe that it is possible.

Sixth, let’s look at some data. In 2023, investment is expected to decline by 6.3%. That is why there will be no growth. And, going back a bit, private investment has fallen for four quarters in a row. Without an increase in investment, there will be no increase in consumption or growth. In addition, we are on the brink of a global El Nino, which will produce rain in the north and drought in the south, which could push up food prices. The private investment growth forecast for 2024 is just over 1%, not enough to turn the game around, although that number could be higher because it depends on us.

Seventh, governments pass. We follow. Sometimes I read many citizens saying that the government should do this or that. I agree. However, if we all think that everything will go wrong, it becomes a self-fulfilling prophecy. No one will invest or use, and we will continue to wait for the state to do something. I think that is not correct. With our personal and family futures at stake, we must act in defiance of the state.

Rather than trusting the state or other countries, we should trust ourselves more. According to the central bank, three-month expectations are in negative or pessimistic territory.

None of this takes away from the need to improve government performance. Clear rules and quality basic services for the most vulnerable should be the first objectives. Corruption is the burden. Eliminating it is a moral imperative. Only in this way will we take the first steps towards progress.

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