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Private
manufacturing continues to decline
In July,
private manufacturing expanded 3.6% over the same month last year, which
contrasted the 1.5% contraction registered in June. The monthly increase
was broad-based, as all but three of the sixteen categories composing the
production index registered increases over the previous month. In
particular, machinery and electrical appliance production as well as
machinery and equipment accelerated notably. Despite the monthly
increase, annual average growth in private manufacturing fell from 4.5% in
June to 3.6%, which constitutes the slowest growth rate in more than four
years. Consensus Forecast participants expect private manufacturing to
expand 2.9% both this year and next.
Oil prices
plummet, risks increase
Amid the
global financial crisis that is set to seriously affect global output this
year and next, commodity prices continue to decline. In October, oil
prices decreased sharply for the third consecutive month, with the average
price for the Venezuelan mix of crude oil plummeting 28.4% from US$ 99.76
per barrel in September to US$ 71.39. Moreover, at the current level, the
price for the Venezuelan mix of crude oil is 5.6% lower than the average
price registered in the same month last year. Meanwhile, oil output in
Venezuela continues to decline as well. According to the October report
from the Organization of Petroleum Exporting Countries (OPEC), Venezuelan
oil output averaged 2.326 million barrels per day (mbpd) in September,
which was down from the 2.334 mbpd produced in August. Output is
suffering from a lack of investment, primarily caused by the departure of
several foreign oil companies, which left the country in the wake of the
nationalisation of the Orinoco oil belt last year. Declining production
as well as falling oil prices pose multiple threats to Venezuela’s
oil-driven economy. First of all, as the oil sector accounts for
more than
a quarter of GDP and more than half of total government income, declining
oil revenues directly affect the real economy and the government’s ability
to maintain the current high level of social spending.
Secondly,
declining oil revenues are increasing pressures on the government to
devalue the currency, which is currently fixed at 2.15 bolívares
fuertes to the US$. An official devaluation would significantly ease
fiscal constraints as unchanged revenues in US$ would equal a larger
amount of local currency. However, a more expensive US dollar would
increase the cost of imports, thus fuelling already soaring inflation.
Currently, 14 of 17 panellists are forecasting an official devaluation to
take place in 2009. In order to increase
oil output and thus raise revenues, the government recently appears to
have abandoned its previous hostile discourse and invited foreign oil
companies to buy minority stakes in the development of the Orinoco oil
belt. In addition, on 24 October, OPEC announced a cut in oil production
quota totalling 1.5 mbpd effective from November, in an attempt to stem
the current declining trend in oil prices. Several OPEC members including
Venezuela have suggested that the organisation should apply another cut in
December or even earlier, if oil prices do not respond to the last output
reduction. Despite declining oil revenues, the government expects the
economy to expand 6.0% both this year and next, according to its recently
published budget for 2009. The projections for economic growth are based
on an average oil price of US$ 60.0 per barrel of Venezuelan crude in
2009.
Consensus
Forecast participants don’t share this assessment and expect economic
growth to slow to 5.5% in 2008, which is down 0.1 percentage points from
last month’s forecast. Next year, the Consensus Panel expects economic
growth to moderate notably to 3.2% for the full year
Inflation
moderates a notch in October
In
October, consumer prices added 2.11% over the previous month, which was
below the 2.50% price increase observed in September. The reading,
however, was in line with market expectations. Higher prices for food and
beverages as well as for housing equipment constituted the main driver of
the monthly price increase. Owing to the below-average October reading,
annual headline inflation fell from 36.0% in September to 35.6%. 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 2.44% in October. Nevertheless,
annual core inflation remained unchanged at September’s 27.0%. So far,
government efforts to contain inflation appear to have been only
marginally successful, as anti-inflationary measures continue to be
accompanied by excessive public spending, especially ahead of the 23
November regional elections. Authorities previously raised interest rates
and sold dollar-denominated debt that could be paid for in bolívares
in order to soak up liquidity. The government recently recognized that
inflation may surpass its 27.0% projection for this year. According to
the 2009 budget, authorities anticipate inflation to moderate to 15.0%
next year. Consensus Forecast participants are sceptical and anticipate
year-end inflation to reach 31.9%, which is up 0.3 percentage points from
last month’s forecast. For 2009, Consensus Forecast Panellists expect
inflation to remain largely unchanged at 31.6%. |
