Economic growth resumes.  On 22 May, the Central Bank reported that the economy expanded by 0.3% in the first quarter over the same quarter last year.  The Q1 figure was the first quarterly increase in economic activity since the second quarter of 1998 and was well above earlier Central Bank projections of a 2.0% contraction in the first three months of this year. Further, actual economic growth also surpassed the May LatinFocus Consensus Forecast, which anticipated a 0.7% decline.  The positive showing confirms that the economy is slowly easing out of the severe 7.2% contraction experienced last year.  However, the relatively weak GDP increase also shows that recovery is proceeding very gradually, given the very weak comparison base in first quarter of 1999, when the economy contracted 9.3%.

The favourable first quarter reading was driven by a 0.9% expansion in the non-oil economy, particularly in the communications and commerce sectors, which expanded by 20.8% and 4.5% respectively.  Economic activity in the construction and banking services industry, on the other hand, continue to remain depressed with both sectors experiencing substantial contractions of 16.5% and 9.6% respectively.

The oil economy contracted 2.0% in the first quarter over the same quarter last year.  This is surprising, given that the oil price development has been more than favourable for Venezuela:  The average for this year was US$ 24.78 per barrel, well above the US$ 15.94 average for the same period in 1999.

So far, the stubbornly sticky recession has been explained by political factors.  President Chávez’ focus on re-writing the country’s constitution have precluded the government from enacting a transparent government economic policy agenda. Furthermore, the ongoing electoral campaigns – ultimately culminating in the upcoming July 2000 mega elections -- have further increased political uncertainty.  As a consequence, private investors have remained guarded and have refused to provide the necessary investments to pull the country clear of the recession.  In 1999, the private sector contracted by 8.0% and the cautious recovery of 1.8% in Q1 2000 indicates that investors still remain cautious.

Consumption is also not yet on a clear path to recovery.  According to Datos Information Sources, consumption dropped 12.0% in the first three months over the same period in 1999.  In addition, while electricity consumption and automobile sales rose by 5.9% and 23.2% year-over-year respectively, both indicators remain far below 1998 levels.  Unemployment remains high and is likely to contain consumption growth.  According to the National Statistical Office (OCEI), unemployment rose further from 13.5% in the last quarter of 1999 to 15.3% in Q1 2000.

Consensus data indicates that panellists remain sceptical about growth prospects this year.  Forecast place Venezuela on the bottom of the rung just above Colombia with 2.8% growth this year.  Participants again revised their projections down 0.1% for this year, the third consecutive monthly downward revision this year.  However, according to the survey the slower growth in the first half of the year will be compensated for with a healthier pickup in the last two quarters of 3.7% and 3.8% respectively.

External balances strong.  The Central Bank released first quarter balance of payments data in May, which indicated that the external accounts ended in a US$ 3.0 billion surplus.  The first quarter surplus compares favourably with the US$ 2.5 billion deficit for the same period last year.  The favourable external performance was almost entirely attributable to a substantial trade-driven improvement in the current account, which reverted to a US$ 9.2 billion surplus from a US$ 2.1 billion deficit for the same quarter last year.  First quarter exports were up 51.1% over the same period last year in the wake of mushrooming oil prices, while imports continued to lag due to continued low consumption and investment levels.  Consequently, imports declined 10.4% over the same quarter last year.

The current account is expected to remain in surplus throughout the year, reaching US$ 6.5 billion by year-end, according to this month's survey.  The Consensus Forecast indicates that export growth will moderate throughout the year but expansion will remain at a healthy 23.0% at the end of this year.  Imports are likely to contract 12.4%, which will produce a US$ 12 billion surplus by year-end.

Continue >>