Venezuela - Economic Briefing May 2004

Economic Recovery Spreading as Domestic Demand Rebound Complements Oil Sector (continued)

Outlook robust but also benefiting from low comparison base in 2003
The Central Bank expects gross domestic product (GDP) to have expanded more than 10% in the first quarter over the same quarter last year.  If the preliminary figure is confirmed by the official release, growth is likely to have been well below market expectations, which had anticipated a 23.2% rise in economic activity in the first quarter given the very weak comparison base the previous year.  The government, nevertheless, is content with the first quarter data and newfound optimism about better prospects for a robust economic recovery this year has prompted officials to raise the growth forecast from the 6.5% budget figure to 9% to 10%.  The official estimate this is well above the 7.3% Consensus Forecast figure for this year.  Consensus Forecast participants, however, anticipate a significant moderation in economic activity as the benefits of a weak comparison base in the prior year subside.  As a result, GDP growth is seen as decelerating to 3.5%, which is down 0.2 percentage points from last month.

Recall referendum efforts continue
On 21 April, the National Electoral Council (CNE, Consejo Nacional Electoral) ruled that the re-verification process of some 1.2 million contested signatures gathered by the opposition for a referendum to recall president Chávez will take place from 27 to 31 May.  The CNE raised the number of approved signatures to 1.9 million, which is still short of the 2.44 million (20% of electorate) needed to initiate the recall referendum.  If not stalled any further, the current timetable would allow for a recall referendum before 19 August.  The opposition is eager to meet the August deadline since the recall of the president would prompt new elections.  However, if the government delays further and the referendum is held after the August date, then, in the event of a recall, the Vice President would take office and no election would be held until the end of the current presidential term in 2006.  Meanwhile, the government has garnered the support of the legislature on a new Supreme Court law, which raises the number of Supreme Court justices from 20 to 32.  The new law allows for simple majority approval of the appointments and will allow Chávez to appoint 12 new judges.  A new government-friendly Supreme Court would give the administration additional leverage to stall opposition efforts to proceed with the recall referendum and possible future elections.  The high likelihood that the current political and social uncertainty will persist for the time being is certain to ensure that economic growth continues below potential.