Consumption growth down; recession pointers up

In 2008, the inflation rate, in a context where production cannot cope with demand, skyrocketed to 31.9 percent. This year, banks and analysts forecast an inflation rate as high as 30 percent (File Photo)

Economy
Amidst record high oil prices, low interest rates and the massive influx of current coin, consumption of Venezuelan families steadily increased from 2004 to 2007. Regrettably, the numbers provided by the Central Bank of Venezuela (BCV) forecast that the party will be over soon.

The index that tracks the volume of sales shows that both wholesale and retail trade accounted for 10.51 percent in 2008, a strong slowdown compared with 34.69 percent in 2007 and 34.10 percent in 2006.

The losing momentum is in line with the steadily rising prices which cut down the purchasing power, both of workers and families who are the recipients of scholarships and several government aid programs.

According to the official data, in 2008 the inflation rate, in a context where production cannot cope with demand, skyrocketed to 31.9 percent. This year, banks and analysts forecast an inflation rate as high as 30 percent.

A low flight over retail trade found that the volume of foodstuffs sales has increased to 8.34 percent in 2008 versus 28.11 percent in 2007. In the meantime, procurement of textile products went from a peak of 108 percent down to 50 percent.

Key sectors
While consumption is running out of fuel, an X-ray of the fourth quarter of 2008 made by the BCV found that manufacturing, construction and mining, the critical areas for job creation, are seriously damaged.
For instance, production of textiles sank by 10.4 percent; vehicles 3.6 percent; rubber and plastic items 16.5 percent; common metals 7.2 percent, and private construction 7.1 percent.

Analysts feel that price control, exchange control, and an environment that discourages private investment have sped up inflation. For its part, plummeting oil prices restrain the government spending ability and lay the foundations for recession.

The plan
So far, the government of President Hugo Chávez has announced just measures intended to offset the government accounts in view of declining oil revenues, instead of trying to reverse the recessive trend.

Therefore, most of the actions can be summed up as budgetary restrictions, increasing taxes and borrowing.

This year, the government will expend USD 72 billion, that is, a 15-percent drop compared with USD 85 billion in 2008.

A declining public expenditure, concomitantly with the feeling of slowed-down consumption in the private sector, will make the economy feebler and prevent if from growing over the next quarters.

Based on the reports of financial entities, the 3-percent hike of the VAT will further curb the consumption ability, with a subsequent impact on economic growth.

As a result of tumbled oil prices, in the fourth quarter, imports will overtake the income from exports.

Usually in this scenario, Venezuelan governments have resorted to devaluation in order to discourage imports and try to be competitive. However, thus far, Minister of Finance Alí Rodríguez has denied such possibility.

The Executive Office has opted to cut down the foreign currency allocated at the official exchange rate. Therefore, the commodities imported under the parallel exchange rate will increase. Sure enough, such an equation will result in higher inflation rates.
vsalmeron@eluniversal.com