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Economic
growth rebounds in second quarter
In the second
quarter, gross domestic product (GDP) expanded 7.1% over the same period
last year. The figure was well up from the 4.8% expansion registered in
the first quarter and also came in above market expectations, which had
the economy expanding 5.7%. The improvement over the previous quarter
reflected stronger growth in both the domestic and the external sector.
Investment registered the strongest improvement, as an 8.2% annual
contraction in the first quarter turned into a 3.7% expansion in the
second. Private consumption, on the other hand, decelerated a notch and
expanded 9.9% (Q1: +10.5% year-on-year). The contribution from the
external sector to economic growth improved, as exports contracted less
than in the previous quarter, while imports decelerated. Exports of goods
and services contracted 3.5% over the same quarter last year (Q1: +3.9%
yoy), whereas imports decelerated from 9.8% annual growth in the first
quarter to 7.2%. At the sector level, the improvement over the previous
quarter was entirely driven by the non-oil sector, which quickened from
5.1% annual growth to 7.8%. The oil sector, in contrast, continues to
suffer from a lack of investment in new and existing oil fields and
decelerated a notch from 3.3% to 3.2%.
Oil prices
decline markedly
In August,
oil prices broke with the rising trend in place since February 2007, as
the average price for the Venezuelan mix of crude oil fell 10.1%, from US
122.25 per barrel in July to US$ 109.88. However, at the current level,
oil prices are still 67.3% higher than the average price registered in the
same month last year. While oil prices remain at record levels, oil
output in Venezuela continues to decline. According to the August report
from the Organization of Petroleum Exporting Countries (OPEC), Venezuelan
oil output averaged 2.316 million barrels per day (mbpd) in July, which
was down from the 2.368 mbpd produced in June. Output is suffering from a
lack of investment, primarily caused by the departure of several foreign
oil companies that left the country following on the nationalisation of
the Orinoco oil belt last year. Despite OPEC’s reporting of falling
Venezuelan output, the government anticipates oil output to average 3.600
mbpd next year, according to its recently published budget proposal.
However, government data for current output also vary greatly from OPEC
estimates, with government sources claiming average output this year to
already be around 3.600 mbpd. Meanwhile, after the Chávez administration
failed to reach a friendly settlement with Mexican cement producer Cemex
to nationalise the Venezuelan subsidiary of the company, the government
has proceeded to expropriate the company’s local operations. The firm has
announced it may seek international arbitration in order to be
compensated. The recent series of nationalisations, which, among others,
also include the Venezuelan subsidiary of Banco Santander and the
country’s largest flat-steel producer, will most likely continue to
negatively affect investment, which already contracted 1.9% in the first
half of the year. Finance Minister Alí Rodríguez recently stated that he
expects economic growth to surpass 6.0% this year. According to the
recently published budget proposal, the government expects the economy to
expand 6.0% in 2009.
Consensus
Forecast participants are less optimistic and expect economic growth to
slow to 5.7% in 2008, which is up 0.9 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 over five years
In July,
consumer prices added 1.63% over the previous month. The result was below
the even more pronounced 2.29% price increase observed in June and also
undershot market expectations of a 2.00% increase. Although broad-based,
the monthly price rise was primarily driven by higher prices for
transport, which added 2.01% over the previous month. As a result of the
July increase, annual headline inflation jumped more than a full
percentage point, from 32.2% in June to 33.7%, which constitutes the
highest level in over five years. 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 1.83% in July. Consequently, annual core inflation rose
from 25.3% to 26.3%. The government has been trying to curb inflationary
pressures by selling debt in order to soak up liquidity. While curbing
consumer demand, the measure has also been relieving pressures on the
bolívar in the parallel exchange market, and consequently, the
currency has been appreciating steadily during the past months. However,
while trying to contain inflation by decreasing liquidity and raising
interest rates, the government on the other hand fails to rein in public
spending. Moreover, public spending is unlikely to diminish at least
until next year, amid windfall revenues from soaring oil prices and ahead
of the regional elections in November. Despite currently rampant
inflation, the government expects inflation to moderate significantly and
end the year at 19.5%. Consensus Forecast participants are sceptical and
anticipate year-end inflation to reach 31.1%, which is up 1.1 percentage
points from last month’s forecast. For 2009, Consensus Forecast
Panellists expect inflation to reach 27.9%.
Current
account surplus widens further amid soaring oil prices
In the
second quarter, the current account incurred a surplus of US$ 16.8
billion. The figure was well up from both the US$ 9.7 billion surplus
recorded in the previous quarter (previously reported: US$ 10.0 billion
surplus) and the US$ 5.8 billion surplus registered in the same quarter
last year. The increase of the current account surplus was primarily due
to a larger trade balance surplus, which rose from US$ 11.5 billon in the
first quarter to US$ 18.6 billion. Exports accelerated from the already
strong 58.7% annual growth registered in the first quarter and expanded
76.2% year-on-year, while import growth decelerated from 14.6% to 10.8%.
The relentless export growth was entirely due to oil exports, which surged
85.6% over the same quarter last year amid soaring oil prices. Non-oil
exports, in contrast, continued on the negative growth trend initiated in
the third quarter of last year and contracted 5.8% year-on-year. As a
result of the quarterly reading, the annual current account surplus jumped
from US$ 26.5 billion in the previous quarter to US$ 37.5 billion.
Nevertheless, since the second quarter oil prices have dropped
substantially, with the
average price
for the Venezuelan mix of crude oil dropping 7.4%, from and average US$
118.72 per barrel in June to US$ 109.88 in August. Therefore,
Consensus
Forecast participants expect the current account surplus to narrow to US$
32.1 billion this year. For next year, the Consensus Forecast panel
expects the surplus to narrow further to US$ 22.3 billion. |
