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Economy
expands at slowest pace in five years
In the third
quarter, gross domestic product (GDP) expanded 4.6% over the same quarter
last year. The result was well below the 7.2% growth attained in the
previous quarter and also undershot market expectations, which had seen
the economy growing 6.3% annually. Moreover, the reading constituted the
slowest growth rate observed in five years. The deterioration compared to
the previous quarter was entirely due to weaker domestic demand growth;
the external sector, in contrast, accelerated. Both private consumption
and investment slowed significantly compared to the second quarter.
Growth in private consumption slowed from 9.0% year-on-year in the second
quarter to 5.8% in the third, while investment turned from a 4.0%
expansion into a 1.3% contraction. The contribution from the external
sector to overall growth, in contrast, improved compared to the previous
quarter, as exports accelerated while import growth slowed. Exports
improved from a 1.2% contraction to a 4.5% expansion, whereas imports fell
from an annual 7.4% expansion to a 3.6% decline. As a result, the
contribution from the external sector to overall economic growth reverted
from a negative 3.5 percentage points in the second quarter to a positive
2.7 percentage points in the third. At the sector level, the
deterioration over the previous quarter was entirely driven by the non-oil
sector, which slowed from 8.1% annual growth in the second quarter to
4.5%. The oil sector, in contrast, almost doubled the pace, from 3.2% in
the second quarter to 6.0%.
2009 budget
threatened as oil prices slide further
Amid the
global financial crisis that is set to seriously affect global output,
commodity prices continue to decline. In November, oil prices decreased
sharply for the fourth consecutive month, with the average price for the
Venezuelan mix of crude oil plummeting 37.1% from US$ 71.39 per barrel in
October to US$ 44.89. Moreover, the current price for the Venezuelan mix
of crude oil is 47.9% 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 November report from the Organization of
Petroleum Exporting Countries (OPEC), Venezuelan oil output averaged 2.301
million barrels per day (mbpd) in October, which was down from the 2.360
mbpd produced in September. 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 a series of
nationalisations last year. Declining production and 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 as well as the government’s
ability to maintain the current high level of social spending. Next
year’s government budget is based on an annual average oil price of US$
60.0 per barrel, significantly above November’s average. Consequently,
Finance Minister Alí Rodríguez recently stated that the government may
revise 2009’s budget at the beginning of next year if oil prices continue
falling.
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$. An official devaluation would significantly ease
fiscal constraints as revenues in US$ would be equal to a larger amount of
local currency. On the other hand, a more expensive US$ would increase
the cost of imports, thus fuelling already soaring inflation. Currently,
a majority of panellists are forecasting an official devaluation to take
place in 2009. Although oil prices may
recover somewhat in the coming months as a result of the northern
hemisphere winter as well as expected additional output cutbacks by
OPEC, the severe economic slowdown expected in the developed world next
year will likely continue to negatively affect oil prices in the medium
term. Despite declining oil revenues, the government expects the economy
to expand 6.0% both this year and the next, according to the 2009 budget.
Consensus Forecast participants don’t share this assessment and expect
economic growth to slow to 5.4% in 2008, which is down 0.1 percentage
points from last month’s forecast. Next year, the Consensus Panel expects
economic growth to moderate further to 2.3%.
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 continued to be
accompanied by excessive public spending, especially prior to 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. Meanwhile, President Hugo Chávez recently
suggested that the trade block ALBA (consisting of Venezuela, Nicaragua,
Cuba, Honduras, Bolivia and Dominica) create a joint monetary zone, in
order to decrease dependency on the US dollar. The Venezuelan 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 31.3%, which is up
0.6 percentage points down from last month’s forecast. For 2009,
Consensus Forecast Panellists expect inflation to step up to 32.5%.
Current
account incurs biggest surplus in more than a decade
In the
third quarter, the current account incurred a surplus of US$ 18.0
billion. The figure was up from both the US$ 16.6 billion surplus
recorded in the previous quarter (previously reported: US$ 16.8 billion
surplus) and tripled the US$ 5.9 billion surplus registered in the same
quarter last year. Moreover, the result constituted the largest quarterly
current account surplus observed in more than ten years. The improvement
over the previous quarter was broad-based, as three of the four elements
of the current account registered bigger surpluses or smaller deficits.
However, the larger current account surplus was primarily due to an
improvement of the income balance, which reverted from a US$ 444 million
deficit in the second quarter to a US$ 567 million surplus. The trade
surplus also widened, from US$ 18.7 billion to US$ 19.2 billion. Exports
slowed somewhat but continued to expand at a vigorous pace (Q2: +76.9%
year-on-year, Q3: +66.7% yoy), while imports turned from a 10.8% expansion
in the second quarter into a 3.0% contraction in the third. The
deceleration in exports was due to faster growth in non-oil exports, while
oil exports slowed compared to the previous quarter. Nonetheless, oil
exports continued to expand at a resilient 71.1% pace, as oil prices
remained above the level observed in the same period a year before. As a
result of the quarterly reading, the annual current account surplus surged
from US$ 37.2 billion in the previous quarter to US$ 49.4 billion, which
also constitutes the largest surplus observed in more than a decade.
Going forward, the current account surplus should shrink substantially, as
average oil prices dropped more than 150% from their peak in June. This
year, Consensus Forecast participants expect the current account surplus
to narrow and reach US$ 43.7 billion. For next year, the Consensus
Forecast panel expects the current account surplus to plummet to US$ 19.0
billion. |
