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Economic slump prompts government revision of forecasts
The 4.2% contraction in economic activity in the first quarter (for
details see the June edition of the LatinFocus Consensus Forecast) has
prompted the government to revise growth forecasts downward for the
remainder of the year. Officials expect the downturn to have accelerated
in the second quarter of the year, with the economy contracting between
4.0% and 5.8%. However, this is still a guessing game. The only updated
official indicator to gauge the current state of economic activity is
manufacturing industry production, which shows that output is decelerating
at a similar pace as in the first quarter. First quarter GDP data showed
that manufacturing activity dropped 6.3% over the same quarter last year.
The more recent Central Bank data indicate that manufacturing output
remains subdued, as activity, when adjusted for inflation, was down 6.2%
in June over the same month last year. The June reading came in below the
4.8% drop registered in May. The strongest declines were experienced in
the basic metals industry and non-metal goods producing factories, where
output declined by 56.2% and 11.1% respectively over June last year.
Furthermore, according to the private sector services association (Consecomercio,
Consejo Nacional del Comercio y los Servicios), national retail sales
dropped between 30% and 65% from the beginning of May through the end of
June, as the more accelerated currency depreciation undercut consumer’s
purchasing power.
Oil price at same levels as last year but
production cutbacks undermining performance
The oil price recovery has persisted throughout most of the first six
months of the year. According to the Ministry of Energy and Mines (MEM),
the price of the Venezuelan basket of crude oils has increased by 37.5%
since the end of December to reach US$ 22.42 per barrel on 28 June. The
year-to-date average price is now firmly above the government’s budgeted
oil price of US$ 16 per barrel, at US$ 19.73 per barrel. However, the oil
sector continues to suffer from OPEC-induced production cutbacks. Since
the beginning of last year, Venezuela lowered its oil production quota
three times by a total of 579,000 barrels per day (bpd) to the current
2.497 million bpd production level. Therefore, even though prices in June
were at par with prices for the same period last year, the lower
production levels have undercut the sector’s performance. In the first
quarter, the oil sector of the economy again suffered a downturn,
experiencing a 7.6% contraction. Currently, OPEC does not intend to raise
production quotas, despite the pickup in global demand and the oil sector
is likely to remain in a slump as a result.
Increased prospects for deepening of
recession this year
Depending on the scale of the second quarter decline, government
calculations show that economic growth for the year could drop between
2.6% and 3.1%. The Consensus expects the recession this year to be deeper
than the current government estimate, as lower oil prices, a deteriorating
currency, high interest rates, public investment cuts and rising
unemployment (15.9% in April) are likely to exert strong downside
pressures on economic activity. According to panellists gross domestic
product (GDP) will shrink this year.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Venezuela. For more details please click here. |
