(Bloomberg) -- Peru central bank chief Julio Velarde said the nation’s gross domestic product will contract this year, marking the first time a government official publicly acknowledges the degree of the economic downturn.

The central bank said GDP will contract 0.5% in 2023, compared to September’s forecast for 0.9% growth, a virtually unattainable projection considering the economy has now shrunk for six straight months. Velarde lowered his 2023 inflation estimate to 3.1% from 3.8% on easing food prices.

Next year, the economy will expand by 3% while consumer price growth ticks down to 2.3%, according to the forecasts presented on Friday. 

Peru’s economy is undergoing its worst recession in years, overlapping with a stretch of high inflation that finally seems to have come under control. Policymakers have cut their key interest rate for four straight meetings, and analysts see more reductions on the horizon. The bank pointed to adverse weather conditions for agriculture caused by El Nino, months of social strife and weak private investment as key contributors to this year’s GDP drop.

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“The most important among them have been climate factors,” Velarde said. “They have hit what have been our most dynamic sectors over the past few years, which has been exports.”

The bank forecasts private consumption ticking up 0.2% this year while private investment will fall 7.3%. 

Meanwhile, headline inflation will ease into the central bank’s target range of 3% to 1% during the first months of 2024. Core inflation, which excludes volatile prices, will do so this month.

“Inflation has clearly declined, but we can’t declare victory yet,” Velarde said.

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