|
Economic
growth plummets in first quarter, driven by weak domestic sector
In the first
quarter, gross domestic product (GDP) expanded 4.8% over the same period
last year. The result almost halved the 8.5% growth tallied in the fourth
quarter and also far undershot market expectations, which had the economy
expanding 6.7%. The deterioration compared to the previous quarter was
due to a sharp weakening of the domestic sector, whereas the contribution
of the external sector to the economy improved compared to the previous
quarter. Both consumption and investment decelerated markedly. Private
consumption growth fell from 19.6% annually in the fourth quarter to
11.1%, while investment converted a strong 25.2% expansion into a 1.8%
contraction, the first decline in more than five years. The
external sector, in contrast, improved over the previous quarter as
exports contracted less than in the previous quarter, while imports
decelerated noticeably. Exports contracted 2.4% over the same quarter
last year (Q4: -10.2% year-on-year) whereas import growth more than
halved, from 30.0% to 13.8%. At the sector level, the oil sector broke
with a contracting trend in place since the second quarter of 2005 and
expanded 3.3% year-on-year, the fastest pace in more than four years.
Output in the non-oil sector, in contrast, decelerated from 8.8% annual
growth to 5.0%, which constituted the slowest rate in more than five
years.
Oil prices
climb further
In May, oil
prices continued their steep upward trend, as the average price for the
Venezuelan mix of crude oil rose 14.5% over the previous month, from US$
99.14 per barrel in April to US$ 113.51. Moreover, this month’s average
was 91.8% higher than the average price registered in the same month last
year. Despite soaring oil prices, Venezuelan oil production continues to
decline. According to the May report from the Organization of Petroleum
Exporting Countries (OPEC), Venezuelan oil output averaged 2.343 million
barrels per day (mbpd) in April, which was down from the 2.364 mbpd
produced in March. Output is suffering from a lack of investment,
primarily caused by the departure of several foreign oil companies last
year. 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 takeover of the largest
flat-steel producer in the country. Contrary to the government’s
objectives of increasing output in key economic sectors, the past
nationalisations and the threat of more takeovers to come have resulted in
a steady decline in investment, which is rendering the economy
increasingly dependent on oil production. This situation is likely to be
sustainable only as long as oil prices continue to rise and thus
compensate for the steady decline in output. Minister of Finance Rafael
Isea expects the economy to expand 6.0% this year.
Consensus
Forecast participants broadly share this assessment and expect economic
growth to slow to 5.8% in 2008, which is down 0.4 percentage points from
last month’s forecast. Next year, the Consensus Panel expects economic
growth to moderate further to 4.1% for the full year.
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 27.9%, which is up 0.1
percentage points from last month’s forecast. For 2009, Consensus
Forecast Panellists expect inflation to moderate to 26.6%.
Current
account surplus rises amid soaring oil prices
In the
first quarter, the current account balance incurred a surplus of US$ 10.0
billion. The figure almost doubled the US$ 5.1 billion surplus observed
in the previous quarter and more than tripled the US$ 3.3 billion surplus
registered in the same period last year. The improvement over the
previous quarter was mainly due to a wider trade balance surplus, which
rose from US$ 5.9 billion in the fourth quarter of last year to US$ 11.1
billion. Exports accelerated markedly compared to the previous quarter,
expanding a staggering 59.4% year-on-year (Q4: +36.2% yoy). Imports on
the other hand, slowed down from 38.3% annual growth in the previous
quarter to 20.0%. As a result of soaring oil prices, oil exports expanded
68.4% annually, up from 42.2% growth in the previous quarter. Non-oil
exports continued to contract, but significantly slower than in the
previous quarter (Q4: -11.5% yoy, Q3: -2.4% yoy). As a result of the
quarterly reading, the annual current account surplus jumped from US$ 20.0
billion in the previous quarter to US$ 26.7 billion. This year, Consensus
Forecast participants expect the current account surplus to narrow and
reach US$ 22.5 billion. For next year, the Consensus Forecast panel
expects the current account surplus to narrow further to US$ 13.4 billion. |
