Venezuela Recession Deepens as Region Resumes Growth (Update1)

By Daniel Cancel

March 2 (Bloomberg) -- Venezuela’s economy fell deeper into recession in the fourth quarter, falling behind other Latin American economies that are seeing growth accelerate as they emerge from the global financial crisis.

Gross domestic product contracted an unexpected 5.8 percent in the quarter from a year earlier, the central bank said today in an e-mailed statement, after shrinking 4.6 percent in the third quarter. The contraction surpassed eight of nine analyst forecasts in a Bloomberg survey whose median estimate was for a 4.6 percent drop.

“Venezuela did better than most countries at the beginning of the global recession, but now it’s in greater trouble,” Juan Pablo Fuentes, an economist at Moody’s Economy.com in West Chester, Pennsylvania, said in a phone interview. “This is continued deterioration.”

Venezuela’s economy will underperform Latin America this year, growing just 0.3 percent compared to forecasted growth of 4 percent in the rest of the region, according to Morgan Stanley. Brazil’s central bank forecasts that Latin America’s biggest economy will grow 5.8 percent this year, Mexico’s central bank estimates the economy will rebound 3.2 percent to 4.2 percent after shrinking 6.5 percent last year.

Venezuelan Finance Minister Jorge Giordani expects the economy to grow 0.5 percent this year.

The recession may last until the third quarter of this year after President Hugo Chavez devalued the currency as much as 50 percent in January, a move that may damp private consumption, Fuentes said.

‘Much Worse’

Venezuela’s oil sector contracted 10.2 percent from a year earlier and the non-oil sector shrunk 4 percent in the quarter, the bank said in the report.

“This is much worse than expected,” Boris Segura, an economist at RBS Securities Inc. in Stamford, Connecticut, said. “There’s further downside in the first half of the year due to the recessionary effects of the bolivar’s devaluation.”

Manufacturing fell 6.9 percent and the mining industry, a sector the government has highlighted as strategic to boost non- oil exports, tumbled 4.8 percent. The economy contracted 3.3 percent during 2009.

Venezuela, the biggest oil producer in South America, cut imports 43 percent in the quarter in a bid to save dollar reserves after oil output fell in line with OPEC production quotas.

Government Spending

Chavez will likely begin to ramp up government spending before key congressional elections in September in a bid to curry favor with supporters and to drive economic growth, according to Segura.

“That’s why they devalued last month because they need to spend more,” Segura said in a telephone interview. “In the fourth quarter they couldn’t.”

Chavez devalued the currency on Jan. 8 for the first time since 2005 and created a multi-tiered exchange system in a bid to stimulate non-oil exports and to double the amount of bolivars received for every dollar from oil sales.

Venezuela now sells dollars at the official rates of 2.6 bolivars for goods deemed essential, including some food, medicine and machinery, and 4.3 per dollar for non-essential items. Companies operating in Venezuela turned to the parallel currency market last year when the government curbed dollar sales at the previous official rate of 2.15 per dollar.

The bolivar weakened 2 percent today to 6.85 per dollar in unregulated trading, the lowest since Aug. 14, traders said.

Venezuela’s economy may contract again in 2010 if manufacturing and retail sales are affected by rolling blackouts and a growing nationwide electricity crisis, Asdrubal Oliveros, a director at the consulting firm Ecoanalitica in Caracas said.

The government has ordered companies to reduce energy consumption by 20 percent or face indefinite power cuts. It continues to enforce rolling blackouts outside the capital, Caracas, in a bid to prevent a collapse of the power grid.

“If the electricity situation is resolved in the second quarter, we could see growth in the second half,” Oliveros said in a phone interview. “But if blackouts occur every 36 hours, the outlook is negative and the economy could contract as much as 5 percent this year.”

anthonyC previously said:

Blutarsky previously said:

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abc200 previously said:


Us Brits have always know thant strength comes trough adversity......
per angusta ad augusta
S.

xwill7 previously said:


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xwill7 previously said:


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