Key economic indicators show that retails sales and industrial performance remain strong.  However, the downward trend in oil prices observed since February is likely to dampen the pace of economic activity.  Nevertheless, the government remains optimistic that growth will remain strong and will not be revising the ambitious growth target for this year.

Economy activity on good path but dropping oil prices prompt slowdown in oil-sector.  Recent data releases indicate that the economy continued along a favourable growth path in the second quarter.  According to the Central Bank, the manufacturing industry grew 20.8% in April over the same month last year, driven by strong expansions in non-metallic products (+44.9% year-over-year) and wood/furniture (+26.5% yoy) industries.  The only sectors not to register double-digit growth rates were textiles, clothing and leather (+7.5% yoy) and the basic metals industry (+4.9 yoy).  Other industrial sectors also remain healthy.  Cement and steel production increased by 19.3% and 14.7% respectively.  On the downside, sugar and fertilizer output dropped 52.5% and 15.1% respectively.  This month’s Consensus Forecast expects industrial expansion to moderate to 2.8% this year, down from 3.6% growth experienced last year.  The oil industry is likely to be the key driver of the slowdown.  On 6 July, the price of the Venezuelan mix was US$ 20.6 per barrel and the average for this year dropped to US$ 22.0 per barrel, still above with this year’s budgeted price of US$ 20.0 per barrel but well below last year’s average of US$ 25.9 (see chart).  In April, oil output rose just 1.3% over the same month last year, while petroleum derivatives production dropped 7.4%. 

Consumption strong despite high unemployment.  In early July, the National Statistical Institute (INE, formerly OCEI) reported that unemployment reached 14.5% in April, down moderately from 14.7% in March of last year.  The new figure places some 1.5 million Venezuelans among the ranks of the unemployed.   Meanwhile the share of the population employed in the informal sector increased from 49.6% in March to 51.2% in April.  Independent surveys indicate that Venezuelans currently consider unemployment one of the main problems in their country.  The government reiterated its commitment to lower unemployment to around 12% this year.  Despite high unemployment, consumption continued to be strong in April.  The Central Bank reports that retail sales rose 37.9% over the same month last year, up from 37.0% in March.  Sales of transport equipment parts grew 81.8%, while machinery and equipments sales expanded 65.6% and, thus, constituted the strongest growing categories.  All other categories of the Central Bank’s retail sales data also exhibited double-digit growth with the exception of beverage and tobacco (-10.2% yoy) and textiles and clothing (-17.4% yoy).  More recent data from the Venezuelan Automobile Chamber (CAVENEZ) show that consumption growth continued to accelerate through the end of the first quarter, with automobile sales rising 67% in June over the same month last year, following the 53% annual expansion in May.

Consensus Forecast revised to the downside despite the government’s optimistic growth outlook.  The government claims that the prospects for this year remain healthy as evidenced by the continued strong readouts for major economic activity indicators.  In June, the Finance Ministry confirmed that it does not intend to revise its 4.5% growth target for this year.   Consensus Forecast participants, however, are less optimistic and have again revised downward their growth estimates for this year, which is 0.8 percentage points below the GDP forecast just three months ago.  In addition, growth is expected to moderate further next year as a result of less buoyant oil prices.

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