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Oil
price up but production and investment containing recovery
So far this year, the oil price has continued to proceed along a
favourable path to recovery. According to the Ministry of Energy and Mines
(MEM), the price of the Venezuelan basket of crude oils has increased by
43._% since the end of December to reach US$ 23.__ per barrel on 9 August
and the year-to-date average price of US$ 20.__ per barrel is now firmly
above the government’s budgeted oil price of US$ 16 per barrel. Consensus
Forecast participants anticipate oil prices to stabilize at higher levels
than expected at the beginning of the year. Accordingly, the Consensus
Forecast for the oil price for this year has been revised upward from US$
__ three months ago to US$ __ per barrel this month. Despite the pickup in
the price of crude oil, production remains down as a result of not only
the OPEC induced production cuts but also the declining private and public
investment seen in that sector. The government expects the oil sector of
the economy to contract 5.5% this year despite healthier oil prices.
Recession to deepen amid gloomy prospects
for oil and non-oil sector
This month’s Consensus Forecast indicates that participants do not believe
that the more favourable oil price setting will significantly bolster the
oil economy to compensate for the downside effects that lower public
spending, declining private consumption and low investment will have on
economic activity in the non-oil sector. In fact, panellists have yet
again revised their growth forecasts downward this month. The gross
domestic product (GDP) is now expected to drop 3._%, which is down 0._
percentage points from last month. Official government estimates now
forecast the economy to contract 3.9% this year roughly in line with this
month’s Consensus figure. Growth is not expected to resurface until the
second quarter of next year, when activity will rebound a modest 1.4%.
Healthier growth in the second half of the year should help the economy to
rebound by a moderate 1.1% in 2003. Next year’s Consensus figure stands in
stark contrast to the government’s optimistic outlook, which anticipates
the oil sector of the economy to experience a strong growth rebound
between 7% to 8%, while the non-oil sector 2.5% to 2%. As a result, the
GDP is expected to recover at a 3.5% to 4.5% pace in 2003.
Inflation subdued due to lack of domestic
demand
According to INE, consumer prices rose 3.6% in July – the second highest
monthly increase this year. The July figure raised annual inflation from
19.6% in June to 22.0% in July. The strongest monthly price increases were
observed in communications (8.1%), transportation (6.3%) and household
goods (6.1%). Only rent and alcoholic beverages/tobacco prices remained
below the 1% monthly increase. The high July increase came despite the
moderation in currency depreciation but is mainly the result of the fact
that the pass-through of the currency depreciation to domestic prices is
occurring with a delay, as businesses are finding that they cannot
transfer the currency depreciation directly through to consumers due to
depressed domestic demand. So far this year, the bolivar has depreciated
43.3% to reach 1,346 bolivares to the US$ at the end of July. The
government expects annual inflation to reach 26.3% this year, which
remains well below the Consensus figure of 30._%. Similarly, the
government expects the annual consumer price increase to moderate next
year to 15% and 18%, lower than the Consensus estimate of 21.7%.
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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