Economic growth consolidating.  Gross domestic product (GDP) expanded 3.3% in the third quarter over the same quarter in 1999.  The economy is now on a clear path to recovery from last year’s recession, as third quarter growth was up again from 2.8% in the second quarter.  Furthermore, the Central Bank release indicates that activity is recovering in most sectors of the Venezuelan economy.

Underlying the improvement in economic performance was 3.4% growth in the oil economy, driven by high oil prices, which reached 20-year highs throughout the year.  According to the Ministry of Energy and Mines, the price of the Venezuela mix of crude oils averaged US$ 26.59 in 2000.  Meanwhile, the non-oil economy expanded at a 2.7% pace impelled by a strong expansion in the communications and mining sectors, which grew by 14.7% and 8.4% respectively.  Even though the construction industry showed signs of recovery in the last two quarters of 2000, with growth at 0.4% and 6.9% in the third and fourth quarter respectively, the expansion was insufficient to offset the 17.4% and 12.6% contraction in the first and second quarter respectively.  Therefore, the construction sector was the worst performer last year, declining 4.9% and, thus, registering the third consecutive annual contraction.  The increase was driven principally by the strong public sector infrastructure investment push and offset by continued low construction activity originating from the private sector.  The incipient rebound in the labour-intensive construction sector is likely to help lower unemployment, which dropped again in September to 13.0% from 14.3% in August, according to the most recent data from the National Statistical Office (OCEI).  The only sector that remained in recession was the financial services industry, which experienced a 0.4% contraction.

Public sector spending spree.  Healthy oil revenues have enabled the government to embark on a large spending campaign this year.  According to the government, public spending this year will increase 65.3% nominally (45.5% in real terms) when compared to the 1999 budget, or by some US$ 8.9 billion.  As a result, the public sector GDP grew 2.3% in the third quarter over the same quarter last year.  The data also indicate that the private sector is beginning to resume its activities.  In fact, the private sector growth expanded at an even faster pace of 4.0% over the third quarter in 1999.

Strong consumption rebound.  Declining unemployment and increased consumer confidence is also driving a strong consumption recovery.  According to the most recent data from the Central Bank, retail sales were up 29.9% in September over the same month last year.  While virtually all sectors experienced double digit growth (excluding tobacco: -12.0%), the home appliance (+33.8%) and clothing (+54.5%) sectors registered particularly strong expansions.

The economy is on a clear path to recovery, driven not only by increased public expenditure, but also by a resumption in consumer spending.  The Central Bank expects the favourable growth trend to hold throughout this year, with growth reaching between 2.8% and 3.0%.  Nevertheless, the strong rebound that should have followed the increase of oil prices to record highs remains absent and growth is expected to proceed favourably next year closing just below the government’s estimate of 4.5%. 

Inflation on target for this year.  Consumer prices rose 0.6% in November, which again lowered the annual inflation to 14.2% from 15.1% in October.  The Consensus figure is now below the government’s 15.0% inflation target for this year as panellists have again revised inflation forecast downward for this year.  Despite higher government spending and the expected pickup in economic activity, inflationary expectations for next year have improved.

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