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The economy is proceeding slowly, as
consumers and firms adjusted to devaluation, high interest rates and a new
inflationary setting. The oil sector continued to suffer the consequences of
lower production and a diminishing oil price, while key employment
generating sectors, such as construction, saw activity plummet. |
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Economy in slump as devaluation and tight credit stave off domestic demand
According to the Central Bank, the gross domestic product (GDP) is likely
to have contracted around 4% in the second quarter over the same quarter
last year, virtually unchanged from the 4.2% contraction observed in the
first quarter. The Central Bank forecast is well above this month’s
Consensus figure, which anticipates the economy to have contracted 5.5%
for the same period. On the demand side, any pickup in consumption
continues to be repressed by the contraction effects that the devaluation
has had on real incomes and rising unemployment. The National Statistical
Institute (INE) reports that unemployment has increased significantly to
15.3% in May from 13.1% during the same month last year. Since the Central
Bank has still not released any updated consumption data for the second
quarter, the only data available to gauge consumption trends are
automobile sales. According to the Venezuelan automobile chamber,
automobile sales in July declined 3.7% over the previous month. As a
result, total automobile sales between January and July were down 22% from
sales for the same period last year.
In addition, the government’s fiscal adjustment caused primary spending,
which includes public sector salaries, procurement and public investment,
to decline 14.5% in nominal terms in the first quarter over the same
quarter last year (28.5% in real terms). The additional 5% nominal
spending cut announced by the finance ministry in July is likely to exert
additional downside pressure on domestic consumption. Finally, the
government’s desire to raise the value-added tax to 16.5% may offset a
more pronounced consumption recovery further.
Meanwhile on the supply side, businesses are facing a politically volatile
operating environment, very tight credit conditions and increased debt
burdens. Central Bank data show that nominal loan rates in July were at
33.5%, still high compared to 25.2% for July last year. Furthermore, the
most recent, financial system statistics from the Superintendence of Bank
and Other Financial Institutions (SUDEBAN) show that the loan portfolio
for the total financial system was down 4.3% in June over the same month
in 2001. According to the Central Bank, private sector manufacturing
industry output (adjusted for inflation) dropped 7.1% in July over the
same month last year, which represented a further deterioration compared
to the 6.2% drop in June for the same period. The most pronounced declines
were observed in basic metals and non-metal goods output, where activity
dropped 51.9% and 11.3% respectively over July last year.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Venezuela. For more details please click here. |
