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New tax
likely to further curb investment in oil sector
In April, oil
prices continued their upward trend, as the average price for the
Venezuelan mix of crude oil rose 3.2%, from US$ 96.08 per barrel in March
to US$ 99.14. Moreover, this month’s average price was 70.1% higher than
the average price registered in the same month last year. Next to
following the general upward trend observed since February 2007, recent
price increases reflect supply problems in Nigeria and geopolitical
tensions in Iran. Despite soaring oil prices, Venezuelan oil production
continues to decline. According to the March report from the Organization
of Petroleum Exporting Countries (OPEC), Venezuelan oil output averaged
2.333 million barrels per day (mbpd) in March, which was down from the
2.390 mbpd produced in February. Output is suffering from a lack of
investment, primarily caused by the departure of several international oil
companies last year. The new oil tax on so-called ‘sudden gains’
introduced by the Chávez administration last month is likely to further
deter private investment in the sector. Meanwhile, after the
nationalisation of the telecommunication and electricity sectors and the
acquisition of a majority stake in the country’s oil production, the
Venezuelan government recently announced the nationalisation of the cement
industry and the expropriation of the largest
flat-steel producer in the country. According to President Hugo
Chávez, private cement companies fail to make the necessary investments in
order to increase production and export too much while leaving the
domestic market undersupplied. However, if the developments in the oil
sector are taken as a precedent, it remains highly questionable if
nationalisation will result in higher output. Due to large public
spending on social housing programs and infrastructural projects, the
government considers the cement industry to be of strategic importance.
According to Minister of Finance Rafael Isea, the government expects the
economy to expand 6.0% this year, which would be well down from the 8.4%
growth registered in 2007.
Consensus
Forecast participants share this assessment and expect economic growth to
slow to 6.2% in 2008, which is unchanged from last month’s forecast. Next
year, the Consensus panel expects economic growth to moderate further to
3.9% for the full year.
Central
Bank raises interest rates to stem inflation
In
February, consumer prices added 2.32% over the previous month. The result
was below the 3.40% increase registered in January but exceeded market
expectations of a 2.00% increase. The price rise was broad based, as all
thirteen categories composing the price index registered increases. In
particular, higher prices for food and beverages as well as for household
items accounted for the monthly price increase. As a result of the strong
price increase in February, annual headline inflation jumped from 19.4% to
20.2%. The core inflation index, which excludes more volatile items such
as fresh food, oil and several other goods for which the government
controls the price level, added an even more pronounced 3.18% in
February. Consequently, annual core inflation inched up from 23.6% in
January to 23.8%. In another attempt to ease inflationary pressures, the
Central Bank recently raised interest rates on credit cards and saving
deposits in order to curb consumer spending, while at the same time
setting maximum rates on credits for companies in the agricultural,
industry and tourist sector to help increase investment in these segments
and consequently, alleviate price pressures from the supply side. A month
earlier, in an attempt to ease shortages, the Chávez administration had
already allowed price increases for a number of basic food products. The
government aims to lower inflation to 11.0% by the end of this year.
However, Finance Minister Rafael Isea has stated that this goal may be
difficult to attain. In the same vein, Consensus Forecast participants
are sceptical and anticipate year-end inflation to reach 27.0%, which is
up 1.6 percentage points from last month’s forecast. For 2009, Consensus
Forecast Panellists expect inflation to reach 26.1%.
Government
raises minimum wages despite soaring inflation
In April,
consumer prices added 1.57% over the previous month. The result was below
the even more pronounced 2.27% increase registered in March and also came
in below market expectations, which had prices adding 2.10% in April. The
price rise was broad-based, as all but one of the thirteen categories
composing the price index registered increases. In particular, higher
prices for food and beverages as well as for transport accounted for the
monthly price increase. As a result of the April figure, annual headline
inflation inched up from 22.6% in March to 22.7%. The core inflation
index, which excludes more volatile items such as fresh food, oil and
several other goods for which the government controls the price level,
added 1.55% in April. Consequently, annual core inflation rose from 23.8%
in March to 24.1%. In another attempt to curb inflationary pressures by
mopping up liquidity, the government recently announced the issuance of
US$ 4.0 billion in US$ denominated bonds, which can be paid for in
bolívares fuertes. Next to stemming inflation, the measure is
intended to provide certain selected industries access to foreign
currency. At the same time however, President Chávez announced a 30.0%
increase of the minimum wage level, a move which improves worker’s
purchasing power in the short term but most likely further adds to
inflationary pressures. Meanwhile, in April, the Central Bank released a
new inflation index that covers ten major cities throughout the country,
as opposed to the previously used index, which refers only to the
metropolitan area of Caracas. According to the new national index,
month-on-month inflation in April was 1.68%. The Minister for Planning
Haiman el Troudi recently stated that the government expects inflation, as
measured by the new national index, to close the year at 19.5%. The
current forecast constitutes a significant upward revision compared to the
11.0% estimated previously. Consensus Forecast participants are sceptical
and anticipate year-end inflation to reach 27.8%, which is up 0.8
percentage points from last month’s forecast. For 2009, Consensus
Forecast Panellists expect inflation to moderate to 26.1%. |
