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The economic downturn is likely to have
deepened as higher unemployment, currency depreciation, tight credit
conditions and high interest rates are stifling any meaningful pickup in
domestic demand. Meanwhile, the oil sector continues to suffer from
production cutbacks, which are offsetting the upside effect of more
favourable oil prices, |
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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 estimate is well above this month’s
Consensus figure, which sees 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 unemployment. The National Statistical Institute (INE) reports
that unemployment has increased significantly to 15.3% in May from 13.1%
for the same month last year. Since the Central Bank has not yet 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 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.
Oil price up but production and lack of
higher investment containing recovery
So far this year, the oil price has proceeded favourably for Venezuela.
According to the Ministry of Energy and Mines (MEM), the price of the
Venezuelan basket of crude oils has increased by 41.7% since the end of
December to reach US$ 23.09 per barrel on 9 August and the year-to-date
average price of US$ 20.38 per barrel is now firmly above the government’s
budgeted oil price of US$ 16 per barrel. The Consensus Forecast for the
oil price for this year has been revised upward from US$ 19.58 three
months ago to US$ 19.92 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.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Venezuela. For more details please click here. |
