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Oil price
developments remain favourable
However, if the oil price continues at its current – more favourable –
levels, the boost to international reserves could serve to buffer the
currency even if capital flight continues at its current pace. According
to the Ministry of Energy and Mines (MEM), the price on the Venezuelan
basket of crude oil closed at US$ 21.34 per barrel at the end of April,
which was up just 0.2% over the previous month but brought the oil price
to 29.6% above the level at the end of last year. The oil price dropped
off moderately to US$ 21.13 per barrel on 10 May to virtually the same
level as in May of last year. Even though most market observers believe
that the current oil price rebound is only temporary and that a resolution
to the Middle East crisis could bring down prices again, the U.S. Energy
Information Administration (EIA) reports that current oil inventory levels
in the United States and the unexpected strong rebound in economic
activity may exert further upward pressure on oil prices this year. The
appointment of OPEC Secretary-General Ali Rodriguez to the presidency of
state-run oil company PDVSA is likely to ensure that Venezuela remains
committed to its OPEC production quotas, which, in turn, could serve to
maintain oil prices at more favourable levels. Since the beginning of
2001, Venezuela has trimmed its output quota three times by a total of
579,000 barrels per day (bpd) to the current 2.497 million bpd production
level. Participants continue to anticipate a favourable oil price scenario
for this year, anticipating a price above the government’s current
budgeted price of US$16.
High
interest rates stifle domestic demand
As a result of the devaluation and increased inflationary pressures,
interest rates rose substantially in the past two months. The average
nominal interest rates on loans have increased from 35.3% in January to
53.5% and 55.8% in February and March respectively only to come down
modestly in April to 48.5%. In addition, banks’ net loan portfolios
experienced a 12.6% drop between December 2001 and March of this year. A
persistence of the current tight credit and high interest rate environment
is likely to further undermine consumption, as consumers are already
suffering the consequences of deterioration in real incomes resulting from
the devaluation. Even though the Central Bank has not provided any recent
retail sales data, other indicators show a strong decline in consumer
demand. According to the Venezuelan Automobile Chamber (CAVENEZ, Cámara
Automotriz de Venezuela), automobile sales dropped 9% in April over the
same month last year, which was the second contraction this year. The
combination of high interest rates and lower real incomes resulting from
the devaluation is likely to suppress consumer demand further.
Consequently, Consensus participants expect consumption to drop this year.
Adverse credit conditions are likely to also keep investors at bay this
year, as participants expect a contraction in investment. The government
has revised its GDP growth forecast downward from 3.5% to just 1-2% but
participants remain more sceptical about economic prospects and further
lowered their GDP growth forecasts 0.2 percentage points from last month’s
survey.
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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