Venezuela’s economy grows at fastest pace in almost four years

May 17, 2012 12:00 AM

Venezuela’s economy grew at the fastest pace since 2008 in the first quarter as record oil revenue allowed President Hugo Chavez to finance a boom in housing construction ahead of elections this year.
The economy expanded 5.6 % from the year earlier, Finance Minister Jorge Giordani said in Caracas.

The median estimate of seven analysts surveyed by Bloomberg was for growth of 4.1 %. The economy grew at the fastest pace since the second quarter of 2008, when it expanded 7.8 %.
A raft of new social programs for the elderly and children in extreme poverty as well as a pledge to eradicate a 2 mm-home deficit are cornerstones of Chavez’s re-election bid in October. The construction industry led expansion in the first quarter, leaping 29.6 % from the year before while financial institutions grew 27.7 %, the bank said.

“Here we have a vision of growth for the next six years,” Giordani said. “We’ve left behind the six quarters of recession which were affected by the world capitalist crisis. This is growth based on a productive model.”
Venezuela, South America’s largest oil producer and a founding member of OPEC, experienced economic contractions of 3.3 % in 2009 and 1.4 % in 2010, before expanding 4.2 % last year.

Oil revenue
Of the 30 countries that have already reported first quarter growth, Venezuela’s was the fourth fastest after China, Latvia and Indonesia. The 5.6 % expansion matched that of Kazakhstan, according to data compiled by Bloomberg.
Net income for Petroleos de Venezuela, the state oil company, surged 42.4 % last year to $ 4.5 bn as the average price for the country’s crude oil rose to a record $ 101.06 a barrel. The price averaged $ 112.04 in the first quarter, according to preliminary figures by the Oil Ministry.

The oil sector grew 2.2 % while the non-oil sector expanded 5.6 %. Transport, retail and communications grew 8.5 %, 7.9 % and 7 % respectively.
After losing his absolute majority in parliamentary elections in September 2010, Chavez announced the creation of a housing program to eradicate Venezuela’s more than 2 mm-home deficit by 2018.

‘Spending expansion’
The project has enlisted companies such as China’s CITIC Group Corp to build low-income homes in Caracas and across the country. The program has constructed 50,000 homes so far this year, state-run Agencia Venezolana de Noticias quoted Oil Minister Rafael Ramirez as saying May 10.
Public spending climbed 17 % to bolivars 81.19 bn ($ 18.9 bn) in real terms in the first quarter from a year earlier, according to calculations by Bank of America Merrill Lynch.

Growth at this pace is not sustainable in the medium-term, said Alejandro Arreaza, an analyst at Barclays Capital in New York.
“You’ve got growth that’s based simply on spending expansion,” Arreaza said. “There’s a point at which you can’t keep on increasing spending -- the economy won’t react to additional increases.”

Inflation has been slowing as the government expands price controls. Consumer prices rose 0.8 % in April, the slowest pace since at least 2007, as caps on a range of consumer care products took effect, driving down prices by as much as 25 %.
The government already regulated the price of more than 100 food products.

‘Significant adjustments’
Venezuela’s annualized inflation rate of 23.8 % remains the highest among 93 economies tracked by Bloomberg. Regulation of prices has led to shortages of milk, chicken, beef, coffee and cooking oil.
Imports grew 48 % to in the first quarter to $ 13.19 bn from a year earlier, the bank said. Exports grew 23.6 % to $ 25.72 bn on revenue from higher oil prices. Venezuela posted a current account surplus of $ 7.14 bn in the first quarter of 2012 and a capital account deficit of $ 8.61 bn, according to the central bank.

Whoever wins October’s election will have to implement “significant adjustments” in 2013 such as a devaluation of the bolivar, Arreaza said. Economic growth probably will slow toward the end of the year as the government eases back on spending after the election, said Alberto Ramos, senior Latin American economist at Goldman Sachs & Co. in New York.
“This economy would have responded much better to this oil price environment five years ago and if you maintain the same policies five years from now it will respond even less,” Ramos said.

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