Economic Briefing November  2001

The government expects current oil production cutbacks to put some downside pressure on the oil sector of the economy but anticipated the loss in activity to be compensated by a strong expansion in the non-oil sector. Furthermore, authorities anticipate healthy oil prices next year to bolster fiscal coffers and help provide fiscal resources to boost the economy.

Government optimistic about growth.  According to the economic assumptions provided in the budget proposal for 2002, the government expects economic growth to reach 4.1% next year.  Key behind the healthy growth scenario is the 5.0% expansion anticipated in the non-oil sector of the economy, as the GDP of the oil sector should grow just 2.0%.  GDP this year is expected to grow between 3 and 4%, which is down from the 4.5% estimated earlier.  Recent economic indicator releases indicate that the economy continues to grow at a healthy pace but some sectors are experiencing a slowdown.  Private consumption continues to proceed favourably as evidenced by the 31.1% expansion in August retail sales over the same month last year, which was up from 30.0% in July.  Virtually all sectors experienced double-digit growth with the exception of textile and clothing sales, which dropped 23.5% year-over-year.  Similarly, total automobile sales rose 54.7% in August over the same month last year, which was down from a 71.0% increase in July.

Industry, however, is experiencing a notable slowdown.  According to Central Bank data, private industry manufacturing rose 3.2% in August over the same month in 2000, which was down from 7.9% and 10.4% in July and June respectively.  On a sectoral basis, crude oil production dropped 3.5% in August over the same month last year as Venezuela seeks to comply with OPEC cutbacks.  Similarly, oil derivative production dropped 6.8% over the same period last year, down from the 5.0% contraction reported for July and the sixth consecutive decline this year.  Cement production declined 18.3% over August last year, up from 13.5% in July.  On the upside, iron and fertilizer production rose 9.2% and 6.9%.

This month’s Consensus Forecast does not expect the pace of economic activity to have slowed in the third quarter, with growth having reached 2.9%, unchanged from 2.9% in the second quarter.  However, growth should decelerate in the final quarter.  Nevertheless, panellists almost unanimously expect the economy to slow next year as lower oil prices and production cutbacks in the oil economy put further downside pressure on economic activity.  Accordingly, GDP is expected to decelerate in 2002, almost half the government’s optimistic forecast.

Government elaborates 2002 budget.  The National Assembly is set to approve the 26.4 trillion Bolivares (US$ 34.3 billion) 2002 Budget in the coming weeks.  The government elaborated the budget prior to the 11 September events and maintains very optimistic assumptions for oil price levels, inflation and currency stability next year.  Finance authorities anticipate the exchange rate to depreciate 5.8% versus the 10.3% expected by the Consensus, while inflation is expected to drop mildly from 11% this year to 10.1% in 2000 (Consensus: 15.4%).  In addition, the oil price for the Venezuelan basket of crude and refined products is anticipated to average US$ 18.50 per barrel (Consensus: 16.10), which authorities claim should generate oil related income at 42.4% of total fiscal revenues. 

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Venezuela.  For more details please click here.

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