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Social unrest mounts against Chávez and economic activity brought to
standstill
The civilian opposition has come through on its threat to call an
indefinite, general strike against the administration of President Chávez
if the government resistance to opposition efforts to hold a national
referendum for early elections persisted. Even though the Electoral
Council (CNE, Consejo Nacional Electoral) approved the initiative before
the opposition mandated deadline of 4 December, the Supreme Court
overruled the decision in favour of the government. The government claims
that the constitution does not permit the calling of a national referendum
for early elections until half way through the administration’s term,
which would be in August 2002. As anticipated, the Supreme Court’s
rejection has led to considerable social unrest, which brought the economy
to a virtual standstill in the first days of December. In the week from 2
through 6 December, the opposition incited various strikes, with high
degree of adherence, which finally spread to the strategic oil industry.
As a result, the government opted to sit down at the negotiation table
with the opposition rather than taking over the oil industry with the
armed forces to guarantee supply shipments.
Economic activity drops in the third
quarter amidst political uncertainty
The additional strain on the economy exerted by social unrests and
crippling strikes could hardly come at a worse moment for the Venezuelan
economy. According to the Central Bank, gross domestic product (GDP)
dropped 5.5% in the third quarter over the same period last year. While
this represents the worst performance in Latin America apart from
crisis-ridden Argentina, the third quarter decline was slightly above
market expectations and actually represented an improvement compared to
the previous quarter, when economic activity dropped 9.7%.
Oil
sector contracts despite higher prices
The downturn in the total GDP reflected declines not only in oil related
(-1.3% year-on-year) but also non-oil related activities (-5.5% yoy). The
meagre performance in the oil sector comes as a surprise, given that oil
prices were favourable throughout the third quarter. The average price for
the Venezuelan basket of crude oil reached US$ 24.45 per barrel in the
third quarter, which was 14.2% above the average for the same quarter last
year. Moreover, the oil sector should have been spurred by the opening to
private firms for exploration in the Orinoco delta, and refining
activities, which increased in the wake of rising external demand.
All sectors in negative territory
With regards to the non-oil sector, continued declines in construction,
retail and manufacturing accounted for the strong third quarter drop in
activity. While the construction sector suffered from continued stagnation
in public and private sector investment (-24.0% yoy), wholesale and retail
sales suffered from a severe decline in consumption (-12.0% yoy).
Meanwhile, the manufacturing industry registered a 5.4% decline, due to
low levels of activity in the majority of industries in the private
sector, which suffered from a persistence of low domestic demand.
Private sector leads decline as business are reluctant to invest under
current political uncertainty
Public sector activity dropped 3.2% in the third quarter over the same
quarter last year, compared to a 6.9% decline in the private sector for
the same period. Businesses continue to withhold investment, as political
uncertainty and a lack of economic policy transparency raise the risk of
doing business in the country. Meanwhile, the depreciating currency and
higher inflation have served to maintain interest rates high and credit
tight.
Participants expect the economy to remain in recession in the final
quarter of the year, anticipating that the contraction in economic
activity reaches virtually the same level observed in the third quarter.
As a result, on an annual basis activity is expected to drop 6.2%. The
recent nationwide general strike against the government has led the
economy to a virtual standstill, which is likely to cost the already
ailing economy dearly. Participants appear to expect the current economic
stagnation to persist into next year, with some panellists even foreseeing
another recessionary year. The forecasts for economic growth next year
display a notable divergence in expectations with the maximum forecast at
3.2% growth and the minimum at a 2.6% contraction. The Consensus sees
economic activity remaining subdued with growth reaching just 0.9%,
unchanged from last month.
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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