BMI View: The increased wealth in Peru from the continued growth of the mining sector and the wider economy will see an attendant growth in private consumption in the country as the consumer power of the growing middle class increases. Despite our forecast for a notable slowdown in headline growth, we expect private consumption will remain a relativ e bright spot for the economy. T his will drive demand for all freight modes, however air freight will, in our view, see the greatest growth as the economy strengthens and purchasing power rises, while road will continue to dominate the mix as the delivery of imported consumer goods and internet purchases soars.
Economic growth in Peru will improve modestly in 2015, driven by a recovery in the construction sector following a sharp deceleration in 2014. However, ongoing weakness in the mining sector will ensure that headline economic growth continues to trend lower in the coming years as compared with the five-year average of 5.8%.
Household spending will accelerate modestly in 2015, as stronger construction activity, a key employment generator, contributes to lower unemployment. Moreover, cheap fuel imports will also be a tailwind for the Peruvian consumer this year. We therefore expect road freight is still comfortably the largest freight mode in Peru and, at 151.4mn tonnes over 2015, will see annual growth of almost 2%.
Peru's rail freight sector is largely reliant on the mining sector, in particular copper concentrates. However, there are other goods, earmarked for domestic use rather than exports, which are also transported by rail, such as coal and various agricultural products. However, owing to declining demand for copper, we believe rail freight will see a contraction over 2015 of -4.7%, to 7.2mn tonnes.
One of the main growth drivers for the airfreight sector, which will see the greatest uptick in tonnage over 2015 out of all the freight modes is the strong demand for consumer electronics in Peru. Our economic growth outlook envisages middle-class incomes rising due to Peru's broad based growth in contrast to much of the rest of the region, which yields a positive outlook for demand for notebooks, tablets and flat-screen TVs. In addition, high demand for Peruvian pharmaceuticals products amongst its regional peers offers an additional boost to tonnage. We therefore expect 5.3% growth over 2015 in air freight tonnage, reaching 359,000 tonnes.
Risks to our growth outlook lie mainly to the upside. Our Commodities team is below consensus on the outlook for copper prices over the next few years, which also puts us below consensus on Peruvian headline growth. Higher average prices than we currently forecast would result in stronger export and fixed investment growth than reflected in our projections, which would likely result in significantly faster real GDP growth in the coming years. This would result in a ramping up of demand across all freight sectors. However, the continued risk of a hard landing in China, should the country's economic rebalancing lead to a dramatic crash in economic growth, as opposed to the slowdown in growth we already see taking place, offers risk of a significant upset to our forecasts. Our outlook for Peru's economic growth, and for growth in its freight transport volumes, is predicated on the assumption that China continues to import Peruvian commodities.
We believe that Peru's freight transport sector is ripe for investment. The country has strong consumer demand and a good commodities mix, as well as being well placed to serve as a gateway to Asia for exports from Bolivia and north-west Brazil. However, its ability to take advantage of these opportunities could be stymied by the fact that its infrastructure is not up to scratch. BMI believes that the recently announced plan to heavily invest in Peru's transport network will help boost the country's freight transport volumes, through providing easier routes to market. However, we caution that perhaps the plan is overly ambitious and might not quite hit the desired target by the scheduled date. According to Peru's Transport and Communications Minister Carlos Paredes Rodrigues, a total of USD22bn is set to be invested in the Latin American country's transport and communications sectors by 2016. This investment forms part of the Peruvian government's drive to 'reduce the infrastructure divide' and make Peru more competitive. BMI notes that an efficient and reliable freight transport network is essential in this aim; through developing this, a country can provide quicker routes to market for its trade, in terms of both imports and exports, and can provide access to previously inaccessible regions. In countries such as Peru, which is heavily geared towards the export of commodities, and has mines in remote regions, this is particularly important; the plan was in fact announced by the minister at a mining conference.
Key BMI Forecast:
Rail freight will drop by 4.7% to 7.2mn tonnes over 2015.
Road freight will rise by 1.2% to 151mn tonnes.
Air freight will rise by 5.3% to 359,000 tonnes