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Government revises growth forecast downward
The Finance Ministry has revised its estimate for gross domestic product
(GDP) this year from the previously announced 8.9% contraction to 10.7%.
The government’s assessment reflects the possibility that economic
activity will remain very depressed amid the less propitious oil price and
the economic stalemate provoked by the current price and foreign currency
controls. Recent data suggest that the recession remained very pronounced
in the second quarter of the year, following the devastating 29.0%
contraction observed in the first quarter of the year. According to the
Central Bank, retail sales were down 14.3% in April over the same month
last year, an improvement from the 20.9% drop in March but nonetheless a
heavy contraction. Furthermore, the Venezuelan Automobile Chamber (Cavenez,
Cámara Automotriz de Venezuela) reports that vehicle sales dropped 66.3%
in the first half of the year compared to the same period in 2002. Any
pickup in consumption continues to be curtailed by the tight credit
conditions, high unemployment (19.1% in April) and the deterioration in
real incomes experienced as the result of the currency depreciation at the
beginning of the year. Similarly, private manufacturing industry output
dropped 14.6% in April, which was up from the 13.7% drop observed in the
previous month. Furthermore, non-oil sector investment will remain absent
as long as the government does not provide more clarity in terms of price
setting and exchange rate policy. The moderate rebound in the oil price
and the government’s announcement that production has reached pre-strike
levels may provide a needed buffer for the economy. According to the
Ministry of Energy and Mines, the price of the Venezuelan basket of crude
oils rose 4.2% in June, reaching US$ 24.93 per barrel on 27 June. The
government forecast for economic growth this year still remains above the
13.3% contraction anticipated by the Consensus Forecast, which is down yet
again a 0.1 percentage point notch from last month.
Political gridlock persists as appointment of new electoral council
stalled
As the government and opposition continue in gridlock, the deadline for an
official referendum for new presidential elections, which could be held
after the mid-term of the Chávez presidency or after 19 August of this
year, is rapidly approaching. Currently, new electoral authorities have to
be appointed to administer the referendum and the legislature has been
stalling the process. May polls from Consultores 21, a local polling
agency, indicate that president Chávez would lose a referendum on his
presidency by 38 percentage points, as 66% of Venezuelans are in favour of
having the president leave office. However, another poll by Datanalisis
shows a high likelihood that Chávez would be re-elected to the presidency
in new elections, unless the opposition were to unify under one candidate.
If the referendum is approved and remains unchallenged by the government,
the administrative process to organize new national elections is likely to
draw out the electoral process to the end of this year. Therefore,
political uncertainty is likely to persist through the end of the year and
the electoral process will continue to overshadow the economy. |
