The link between high oil prices and economic growth has vanished

The report issued by the Central Bank of Venezuela (BCV) at the end of the first quarter of 2010 clearly shows that economic downturn has not slowed down, and that the historical link between high oil prices and growth is blurring.

By comparing the figures issued by the BCV with the data recorded in the first quarter of 2009, the average price of the Venezuelan oil basket dramatically recovered by 85 percent to USD 70.5. However, the economy shrank 5.8 percent and declined for the fourth consecutive quarter.

Virtually all the engines that can boost the economy are off. Private consumption declined 5.9 percent; investment plummeted 27.9 percent; government spending fell 0.2 percent. The only positive figure was the increase of Venezuelan exports (70.9 percent) thanks to the recovery of oil prices.

The BCV report shows the impact on key areas for wealth and employment creation: manufacturing declined 9.9 percent; trade (-11.6 percent); construction (-7.8 percent), oil sector (-5 percent). On the positive side, communications jumped 9.7 percent and community services increased by 2.8 percent.

The Central Bank of Venezuela attributed the negative results in the first quarter to the "temporary discontinuation of access to foreign currency for imports of goods and services, lower domestic aggregate demand from consumers, reduced investment and the effects of environmental conditions that forced the government to implement a power rationing plan aimed at ensuring rational and equitable use of electricity."

Although the Central Bank of Venezuela conceded that the economy was affected by exchange shortage, the Foreign Exchange Administration Commission (Cadivi) said on April 15, through a press release, that in the first quarter of this year it allocated a total of USD 5.42 billion for imports, an 11 percent increase over the same period of 2009.

Declining output comes hand in hand with a steady increase in prices. As a result, Venezuela's economy shows the highest inflation in Latin America.

This "disease," characterized by two simultaneous seizures: GDP's stagnation or contraction and significant price increases, is technically defined as stagflation.
In the absence of economic growth, sales drop, companies do not need to hire new staff and there are no profits to adjust wages properly, while prices increase on a monthly basis.

Economist José Guerra, a former economic research manager at the Central Bank, said that "the link between high oil prices and economic growth has vanished. A part of government spending usually translates into inflation, as it encourages demand; another part boosts growth. However, (in the case of Venezuela) all (government spending) is leading to inflation, due to falling investment and insufficient supply."
vsalmeron@eluniversal.com

Translated by Gerardo Cárdenas
Víctor Salmerón
EL UNIVERSAL

I see it coming too

Yes of course it was the evil empire the Honky crackers of the CIA etc etc Show the Zapruder film again there there on the grassy knoll there they are

By the way, did the Cubans ever fix the electrical problems in Venezuela?

I'm waiting for Chavez to announce that henceforth elections in Venezuela will only run according to Bolivarian standards and that means his perpetual rule. Of course the USA will be at fault for that development, too.