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Oil sector slows growth in third
quarter
On 21 November, the Central Bank reported that
third quarter Gross Domestic Product (GDP) expanded 2.8% over the same
quarter last year, which was just below last month’s Consensus Forecast
figure of 2.9%. The third quarter figure brought the growth in the first
nine months of this year to 3.1%.
The quarterly expansion was slightly above the
2.6% growth rate in the second quarter but seasonally adjusted data
actually exhibit a 0.8% contraction over the second quarter of this year.
Strong growth in the non-oil economy (+3.9% year-on-year) was the key
driver behind the third quarter expansion.
Nevertheless, activity in the non-oil economy
was actually down moderately from 4.1% observed in the second quarter,
principally as the result of lower manufacturing activity, which slowed
from 5.3% in the second quarter to 2.9% in the third. Increased
government spending on public infrastructure programmes has been driving
the healthy growth in the construction sector (+14.4% year-on-year), while
rising consumer demand for new telecom services has fuelled growth in the
in the telecommunications industry (+13.8% yoy).
Less encouraging, however, was the 1.1% third
quarter contraction in the oil economy, the second quarterly contraction
this year. The government claims that these second and third quarter
declines are the result of production cutbacks implemented this year.
Since the beginning of 2001, Venezuela has trimmed its output quota three
times by a total of 406,000 barrels per day (bpd) to the current 2.67
million bpd production level.
The drop in the oil price observed for most of
the year, however, has put additional downside pressure on the oil
sector. Despite OPEC cutbacks, oil prices have not rebounded
substantially this year. In the third quarter, the oil price for the
Venezuelan basket of crude oils averaged US$ 20.96 per barrel, which was
down 25% from US$ 28.13 in the third quarter last year.
The prospects for a quick turnaround in the
economy in last quarter are not promising. The plummeting of the oil
price in September (-17.72%) was not repeated in October or November but
the contraction persisted with the price declining 7.7% and 9.6%
respectively. Even though OPEC announced another 1.5 million bpd cut for
1 January 2002 in its 15 November meeting, the reluctance of non-OPEC
members to comply with the required cuts threatens to undermine the
implementation, while continued deterioration in global demand is likely
to put further downside pressure on prices. While the average oil price
remained above the government’s 2001 budget figure at US$ 20.63 on 7
December and is likely to remain on target for this year, the current US$
15.34 price level is now well below the government’s 2002 budgeted price
of US$ 18.00 per barrel.
The government remains overly optimistic about
growth prospects next year, given that production cutbacks and lower oil
prices are likely to further lower oil sector activity (Q3: 26.8% of
GDP). Prospects for continued strong growth of the non-oil economy are
not promising, given the current softening in global demand, looming
energy shortages and limited public spending, which will exert downside
pressures on domestic consumption. If growth in the non-oil economy
remains below target next year, then the government will face not only
deterioration in fiscal balances but also an increasingly vulnerable
macroeconomic setting, given that investor confidence continues to remain
low. Participants have revised their forecasts for this year downward to
reflect the third quarter data release. Furthermore, the economic
weakening is likely to persist into next year.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Venezuela. For more details please click here. |
