Growth recovering steadily.  The Central Bank reported that the economy expanded by 2.6% in the second quarter over the same quarter last year.  The Q2 figure is the second consecutive quarterly increase in economic activity this year and confirms that the economy is beginning to recover from last year's 7.2% recession.  Underlying the second quarter performance was a 3.0% expansion in the non-oil economy, led by the communications and mining sectors, which grew by 18.4% and 15.6% respectively.  Activity in the construction and financial services industry, on the other hand, remained depressed with both sectors experiencing contractions of 3.0% and 6.8% respectively.

The oil economy expanded a modest 0.9% in the second quarter over the same quarter last year, despite high oil prices, which have averaged US$ 25.9 per barrel through 8 September, well above the US$ 15.9 average for 1999 and the US$ 15.0 underlying the fiscal budget planning for this year.  Healthy oil revenues and rising pressure from Venezuela's poor and middle classes, tired of the sustained recession, have prompted the Chávez government to embark on an ambitious public spending programme to rekindle growth.   As a result, the public sector accounted for a stronger push behind the Q2 recovery than the private sector, growing 4.1% over the same month last year compared to the private sector's 2.7% expansion. 

Nevertheless, the private manufacturing industry is beginning to show healthier growth rates, heralding a recovery in private sector activity.  According to the most recent data from the Central Bank, industrial production grew 8.8% in June over the same month last year.  In addition to the virtual doubling of production in the wood processing industry, the basic metals (+19.5%), paper (+14.3) and machinery (+12.1%) industries all experienced strong growth. 

The private research institute Datanalisis reports that unemployment dropped from 18.4% (vs. government 15.3%) in the first quarter to 16.8% in the second quarter of this year.  As a result of improving employment and higher wage levels, consumption has received a boost.  According to the most recent data from the Central Bank, retail sales were up 26.7% in June over the same month last year.  The strongest growth rates were registered in the automotive and home appliance sector, which grew 39.7% and 76.1% respectively in June over the same month last year.

Inflation in remains in check.  The Central Bank reported that inflation rose by 0.8% in August, the second lowest monthly increase this year.  The monthly increase came despite the vacation season and brings annual inflation rate down from 15.8% in July to 15.0% in August, the lowest level since 1987.  The Consensus figure is gradually converging on the government’s own 15% inflation target for this year.  

Government spending driving economy.  High government spending is likely to remain the key driver behind the economic recovery as long as the government fails to articulate its economic policy agenda.   According to the most recent data release from the government, public spending increased 42.5% in the first half of this year, reaching US$ 13.3 billion.   

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