By FABIOLA SANCHEZ

CARACAS, Venezuela

Venezuela's economy shrank 3.5 percent during the first half of 2010 compared to the same period a year earlier, the Central Bank said Thursday in a report that revealed a deep recession in this South American nation ahead of legislative elections.

The economy contracted by 1.9 percent in the second three months for the year, dragged down by a 2 percent decline in the oil sector and a 1.8 percent decrease in the private sector, the central bank said. The economy shrank by 5.2 percent in the first quarter of 2010.

It is the fifth straight quarter that Venezuela's oil-dependent economy has contracted. Government officials blame the recession on lower petroleum prices and lingering effects of the world financial crisis.

Venezuela's economy is highly reliant on oil sales -- accounting for 95 percent of the country's export earnings.

Critics argue the government's socialist-orientated economic policies, coupled with less consumer demand and investment, are responsible for the country's economic woes.

The economic downturn coincides with double-digit inflation that has become a major challenge for President Hugo Chavez's government ahead of legislative elections next month. Venezuela has had the highest inflation in Latin America for five years despite government price controls on many foods and other basic goods.

Venezuela has not seen such difficult economic times since 2003, when the economy contracted 26.7 percent in the first quarter of that year in the aftermath of a failed coup attempt against Chavez and an opposition-led strike by oil industry workers.

Chavez didn't comment on the report during a televised speech on Thursday, but he expressed optimism the economy is about to rebound.

The economy contracted 3.3 percent last year.

The government has set a goal of economic growth between 0.5 percent and 1 percent this year, but analysts are predicting the economy will shrink more than 2 percent by the year's end.