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Inflation moderates as currency strengthens
Consumer prices rose 1.6% in November, which was below market
expectations. As a result, the annual inflation rate increased to 30.7%
from 29.9% in October. Food and non-alcoholic beverages as well as alcohol
and tobacco prices were the key drivers behind the November increase. The
only price categories that remained well contained, were housing services
and recreation, where prices remained unchanged over the prior month. The
continued slump in economic activity and high unemployment (16.2% in
August) are likely to remain key factors in containing rising inflation.
Participants have revised their forecast for year-end inflation from last
month by 1.2 percentage points to 32.6% but expect inflationary pressures
to persist into next year with the annual inflation rate moderating only
slightly to 26.9%. If enduring, the recent currency strengthening may
serve to provide a further impediment for more pronounced inflationary
pressures.
In November, the bolivar appreciated 6.1% over the prior month, which was
up from the 4.6% appreciation observed in October. As a result, the annual
depreciation rate came down further from 45.9% in October to 42.6%. At
1,328 bolivares, the currency has come back to levels observed four months
ago. In the week ending 6 December, the currency strengthened further to
1,312 bolivares to the US$. Some participants have factored the recent
appreciation into the year-end exchange rate forecasts. However, the
Consensus still sees significant weakening through the end of December
with the bolivar ending at 1,532 to the US$. The currency depreciation is
expected to ease somewhat from this year’s 49.8% annual depreciation to
17.1% in 2003. As a result, participants expect the currency to close next
year at 1,831 bolivares to the US$.
Annual current account surplus more than doubles in third quarter
At the closing of the third quarter of this year, the current account
surplus reached US$ 3.8 billion, while the capital and financial account
exhibited a deficit estimated at US$ 2.8 billion. The current account
surplus was significantly above the figure observed in the same quarter
last year (US$ 717 million), due to the strengthening trade surplus, which
widened as a result of 17.5% growth in total exports and a 35.4%
contraction in imports.
The improved export performance was attributed to the healthy increase in
international oil prices and a sustained rise in the volume of exports
from the non-oil producing public enterprises, in particular chemical and
basic metals producers. Even though non-oil private sector exports
registered a slight drop of 3.5%, mining and automobile sector sales rose
notably.
With regard to imports, the contraction experienced in the third quarter
can be attributed to the impact of the depreciation on real incomes. In
addition, continued downturn in real economic activity as well as lower
levels of consumption and investment exerted downward pressure on imports.
Participants expect the current account surplus to widen further in the
final quarter of the year, with the annual figure reaching US$ 6.9
billion, which is up from a US$ 6.5 billion surplus expected last month. A
persistence of healthy oil prices should continue to favour the export
sector and promises to generate a healthy trade surplus next year amidst
faltering domestic demand for imports. As a result, the current account
surplus is anticipated to decline only moderately to US$ 6.9 billion in
2003.
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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