Venezuela’s economic growth has cooled off to its lowest level in almost five years, despite an oil boom and with inflation continuing to spiral. Economists say that government measures taken to control one of the highest inflation rates in the world have damped demand, causing annualised growth to fall well below expectations to 4.8 per cent in the first quarter, compared to 8.8 per cent last year, according to figures released by the country’s central bank late on Tuesday. Guillermo Ortega, the head of economic research in the finance ministry until early this year, says previous growth levels were not sustainable in the long term. “Obviously an economy can’t keep growing at 8 or 9 per cent forever,” he said. He argues that powerful growth in recent years is mainly due to a rebound as the economy recovered lost ground after coming to a virtual standstill during to an oil strike in 2002-2003. “This level of growth is nothing to worry about. On the other hand inflation of around 30 per cent most certainly is a concern, and a danger,” he said.
Jorge Perez, an economist at the Central University of Venezuela, said that with key regional elections in November, the government has begun to prioritise its attack against inflation, which last month hit 29%, over growth. “The government’s actions to restrict liquidity have the collateral effect of dampening growth,” he said. The government has raised interest rates and issued dollar-denominated local debt to absorb liquidity in an economy awash with bolivars due to foreign exchange controls, reversing the rapid devaluation of the black-market value of the local currency last year. It has also moderated heavy spending, which together with negative real interest rates propelled economic growth of over 10 per cent in 2005 and 2006. But analysts fear spending may increase again, however, as the elections approach.
Alberto Ramos, an economist at Goldman Sachs expects growth to moderate to 5-5.5 per cent this year due to growing supply bottlenecks, a dynamic of rising imports and falling exports, and a poor investment climate as the government continues its nationalisation drive. Indeed, in a measure of the tension between the government and the private sector, communication minister Andres Izarra tendered his resignation on Tuesday after unilaterally deciding to force privately-owned networks to pay $200,000 per hour for the right to broadcast President Hugo Chávez’s speeches.
Financial Times
