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Congress continues to stall the process of
selecting a new electoral council, necessary to pave the way for a
referendum over the presidency of Chávez. Even if a political resolution to
the current stalemate is found soon, the political uncertainty arising from
new elections will cast an additional shadow over the economy, which is
currently experiencing its worst recession in recent history. |
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Oil
sector only buttress this year
Even though the oil price has been gradually declining from its highs in
March, so far this year, the oil price remains favourable for Venezuela.
According to the Ministry of Energy and Mines (MEM), the price for the
Venezuelan basket of crude oils reached US$ 25.10 per barrel on the week
ending 1 August, which still remains 7.8% above the price on 2 August last
year and is still firmly above the government’s budgeted oil price of US$
18.00 per barrel for this year. The Consensus Forecast for the average
2003 oil price has been revised upward from US$ 20.54 a month ago to US$
21.44 per barrel this month. In addition to the continued favourable
development in the oil price, oil output has also picked up. According to
data from the Organization of the Petroleum Exporting Countries (OPEC),
Venezuelan oil production has recovered to beyond its pre-strike levels at
the end of November last year, with output of 2.7 million barrels per day
in May just a notch below the allotted OPEC quota of 2.8 million bpd.
Given that the oil sector is crucial in providing foreign currency and
government income in terms of royalties and dividends, a rebound in oil
sector activity is critical if the government wishes to bring the economy
back on track.
Unemployment declines in June but remains at historical highs
Employment data for June confirm the dire state of the Venezuelan economy.
In June, open unemployment dropped to 18.4% from 19.2% in May. The June
decline confirmed the slight moderation in unemployment observed since
February but was well above the unemployment figure of 16.2% registered
for the same month last year. At current levels, unemployment remains at
the highest levels in decades, which is likely to continue to exert strong
downward pressure on consumption. Consumption is also strained by a strong
deterioration in real wages in the wake of the depreciation and tight
credit conditions. Even though the Central Bank does not publish quarterly
aggregate demand and supply data, consumption-related indicators suggest
that private consumption is indeed plummeting. In April, retail sales were
down 19.8% over the same month last year, which represented only a mild
improvement from the previous month, when the decline reached 21.3%. The
moving annual average, which smoothes out some of the volatility inherent
to this indicator, shows that retails sales dropped 27.7% in April over
the same month last year. Furthermore, according to the Venezuelan
Automobile Chamber (CAVENEZ, Cámara Automotriz de Venezuela), annual
automobile sales dropped 63.0% in June over the same month in 2002, which
was down from 62.1% in the previous month.
Consensus Forecast participants remain sceptical about any possibility
that the oil sector could shield the economy from a dramatic drop in
activity this year. Furthermore, the non-oil sector of the economy is
likely to suffer greatly from the current foreign exchange controls, which
are driving many businesses into bankruptcy. According to the Central
Bank, the Foreign Currency Administration Commission (CADIVI, Comisión de
Administración de Divisas) is delivering approximately US$ 20 million
daily – only a third of the normal foreign currency delivery prior to the
exchange controls. Local industry, which imports 60% of primary materials
used as input for production, is currently forced to buy foreign currency
in the black market at a 30% to 40% premium to the official rate, which is
fixed at 1,600 bolivares to the US$. Participants, anticipate that the
economy experienced another dramatic decline in the second quarter of this
year and a recovery is not seen to take a grip over the economy before the
end of the year. In the second quarter, gross domestic product (GDP) is
seen to have dropped by 14.4% and is anticipated to decline a further
10.7% in the third quarter before rebounding in the final quarter of the
year with 5.4% growth. As a result, the strong contractions in the first
three quarters of the year will drag down the annual decline in economic
activity to 13.2%.
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