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Recession to deepen amid gloomy prospects
for oil and non-oil sector
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 government’s revised estimate of a 3.9% contraction this
year is well above this month’s Consensus figure. Growth is not expected
to resurface until the second quarter of next year. Healthier growth in
the second half of 2003 should help the economy to rebound 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% and a non-oil sector
expansion of 2.5% to 3%. As a result, the government expects total GDP is
expected to recover at a 3.5% to 4.5% pace in 2003.
Lack of domestic demand constraining
higher inflation
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 increased less than 1%.
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.
Similarly, the government expects the annual consumer price increase to
moderate next year to 15% and 18%, lower than the Consensus estimate.
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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