|
Government
to promote private investment
In June, oil
prices continued to rise albeit at a more moderate pace, as the average
price for the Venezuelan mix of crude oil rose 4.6%, from US$ 113.5 per
barrel in May to US$ 118.7. At the current level, oil prices are 90.2%
higher than the average price registered in the same month last year.
While oil prices are rising, Venezuelan oil production continues to
decline. According to the June report from the Organization of Petroleum
Exporting Countries (OPEC), Venezuelan oil output averaged 2.345 million
barrels per day (mbpd) in May, which was down from the 2.357 mbpd produced
in April. Output is suffering from a lack of investment, primarily caused
by the departure of several foreign oil companies last year. The series
of nationalisations in the oil and other sectors as well as the threat of
more takeovers to come have resulted in a steady decline in investment in
the entire economy. In an attempt to reverse the ensuing slump in
economic growth, which plummeted from 8.5% in the fourth quarter to 4.8%
in the first, President Chávez recently announced an increase in
agricultural subsidies and a US$ 1.0 billion loan package for companies in
order to stimulate investment and boost output. Meanwhile, on 15 June,
former president of state oil company PDSVA Alí Rodríguez was appointed
finance minister, replacing Rafael Isea who is running for a regional
governorship. Rodríguez has stated that he does not plan any major policy
changes as of yet. Despite the weaker first quarter results, the
government expects the economy to accelerate in the remainder of the year
and expand 6.0% for the full year. Planning and Development Minister
Haiman El Troudi further stated that he expects economic growth to average
5.5% throughout the next decade.
Consensus
Forecast participants broadly share the government’s assessment and expect
economic growth to slow to 5.7% 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 4.2% for the full year.
Inflation
reaches highest level in nearly five years
In May,
consumer prices added 3.46% over the previous month. The result was far
above the already pronounced 1.57% price rise observed in April and almost
doubled market expectations, which had prices adding 1.80%. 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 accounted for the monthly price increase, as they added
7.21% over the previous month. As a result of the pronounced May reading,
annual headline inflation jumped more than two percentage points, from
29.3% in April to 31.5%. 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 2.95% in May.
Consequently, annual core inflation rose from 24.0% in April to 25.0%.
The pronounced price increase in May can be partially explained by the
recent loosening of price controls on a number of basic food products,
intended to increase production and thus alleviate shortages. Meanwhile,
in another attempt to curb soaring inflation, the government recently
eliminated a financial transaction tax for companies that had been
introduced in November of last year. Other recent anti-inflationary
measures included a bond sale in April to soak up liquidity and several
increases of consumer interest rates since the beginning of the year.
However, President Hugo Chávez recently stated that the government does
not intend to rein in public spending to fight inflation, as this would
undermine economic growth. The government expects inflation to close the
year at 19.5%, which constitutes a significant upward revision compared to
the 11.0% previously estimated. Consensus Forecast participants are
sceptical and anticipate year-end inflation to reach 28.7%, which is 0.8
percentage points from last month’s forecast. For 2009, Consensus
Forecast Panellists expect inflation to moderate only minimally to 27.5%. |
