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Economy
set for vigorous rebound in first quarter aided by weak comparison base
last year
The
acceleration of economic activity observed in the final quarter of last
year appears to be carrying over into the first quarter.
Recent economic statistics indicate that the recovery is widening,
as non-oil sectors benefit from dropping unemployment, the stable exchange
rate and gradually declining inflation.
Non-oil
economy bolstered by manufacturing and retail
According
to the Central Bank, private manufacturing rose 100.4% in January over the
same month last year, which was down from the 179.9% year-on-year increase
observed in the prior month.
A year ago, the economy had come to a virtual standstill amid
nation-wide strikes staged by the opposition to topple President Chávez.
Mushrooming leather goods and textile production provided the key
driver behind the strong January manufacturing figure.
Almost all sectors experienced annual growth over 100% with the
exception of machinery and electrical equipment (+24.0% yoy) as well as
food, beverages and tobacco (+31.8% yoy).
Similarly,
private consumption is recovering strongly, as the stable exchange rate
and the moderation in inflation are providing needed leeway for an
increase in activity.
According to the Central Bank, retail sales (including automobiles)
rose 41.3% in January over the same month last year, which was up from the
28.2% expansion observed in the previous month.
The pick up in retail sales was particularly pronounced in
automobile fuels, automotive parts and clothing/textiles sales.
Oil
sector rebound to persist as oil prices remain high and OPEC cuts
On
31 March, the Organization of the Petroleum Exporting Countries (OPEC)
decided to cut oil production by 1 million barrels per day (bpd), to 23.5
million bpd as it had previously announced on 10 February in Algiers.
Despite the fact that the oil price has remained persistently above the
official OPEC price band of US$ 22 to US$ 28 per barrel in the first
quarter of the year, OPEC member countries decided that the world crude
oil market remained well supplied, particularly given that the global
economy was entering a period of traditionally lower demand and that crude
stocks had been building up notably. As a result of the OPEC cut,
Venezuela’s production quota dropped by 115,000 bpd (4.1% over the
previous quota) to 2.7 million bpd. According to OPEC data,
Venezuelan oil production remained below quota in February at 2.65 million
bpd, which means that the country has leeway to step up output in the
coming months. The chance for increased production is likely to
further bolster the rebounding oil sector, already benefiting from a
persistence of high oil prices. In March, the price on the Venezuela
basket of crude oils closed at US$ 30.86 per barrel, which was 30.3% above
the price observed at the end of the same month last year.
Furthermore, at its current level the average price for the first three
months of the year of US$ 28.87 per barrel, is firmly above the
government’s budgeted oil price of US$ 18.50 per barrel for this year.
The oil sector is essentially the backbone of the economy since it
constitutes the key provider of foreign exchange and government revenues
in terms of royalties and dividends. Therefore, the current revival
of growth will remain heavily contingent upon a sustained rebound in this
sector.
Economic
recovery underway but pace to moderate throughout year
The
pronounced nature of the current economic rebound is in part overstated
due to the very low comparison base last year, when the economy came to a
standstill as the result of a two-month nationwide strike against the
current government.
Nevertheless, some economic fundamentals have also improved, namely,
the stability of the currency, the moderation of inflation, gradually
declining interest rates and lower unemployment.
Favourable prospects for the oil sector and the improvement in the
non-oil sector presage a further boost to economic activity in the first
quarter of this year.
In fact, Consensus Forecast panellists expect gross domestic
product (GDP) to have grown 23.2% in the first quarter over the same
quarter last year.
But that comes on the back of a 27.9% contraction in the first
quarter 2003 and thus falls short of a full recovery.
Moreover, the pace of economic growth is likely to moderate quickly
in the succeeding quarters, as the low comparison base of last year falls
away.
In addition, the persistence of the current political and social
turmoil is likely to remain a key impediment to a more pronounced and
sustainable economic rebound.
As a result, growth is seen to reach just 1.5% in the fourth
quarter.
Annual GDP is seen to expand by 7.4%, which is up 0.4 percentage
points from last month’s forecast.
The declining growth trend will carry over into next year, as
economic growth is anticipated to reach a more moderate 3.7%.
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