Venezuelan Economy Grew at Slowest Pace Since 2003 (Update2)

By Daniel Cancel and Matthew Walter

Feb. 26 (Bloomberg) -- Venezuela’s economy grew at the slowest pace since 2003 in the fourth quarter, expanding 3.2 percent after a plunge in oil prices led to tumbling revenue from the country’s biggest export.

Gross domestic product in 2008 grew 4.8 percent, the smallest annual increase in five years, the central bank said today in a statement published on its Web site. Quarterly growth was in line with the 3.3 percent median forecast of 10 economists in a Bloomberg survey.

“This is the continuation of a decelerating trend which won’t get much better this year with the expectation of fairly low oil prices,” Boris Segura, an economist at Morgan Stanley said in an interview from New York.

Oil exports plunged 47.2 percent in the fourth quarter, causing the country to record its first quarterly current-account deficit since 2001. The government brought home billions of dollars in foreign deposits during the period, which may be used to defend the currency or finance spending as the economy enters a recession this year, said Alvise Marino, an emerging markets analyst at IDEAglobal in New York.

The central bank said the $10.4 billion capital account surplus in the quarter was due mostly to a reduction in foreign assets by the public sector.

Oil accounts for 93 percent of exports and 50 percent on the government’s revenue.

‘Plan B’

“The government has resorted to using savings,” Marino said. “You’d hope there is a Plan B, because eventually those savings will be depleted.”

Venezuela, the biggest oil exporter in the Americas, may contract 1 percent this year after a five-year boom in oil prices came to an end in July, according to Morgan Stanley.

Oil prices have fallen 69 percent since July 11 when they touched a record high of $147.27. Crude oil for April delivery increased $2.72, or 6.4 percent, to $45.22 a barrel at 2:43 p.m. on the New York Mercantile Exchange, the highest settlement since Jan. 26.

After winning re-election in 2006, President Hugo Chavez launched a campaign to nationalize strategic sectors of the economy, taking over cement companies, a steel mill and oil joint ventures with companies including Exxon Mobil Corp and Repsol YPF, among others.

Zero Growth

The private sector saw zero growth last year, while the public sector expanded 16.4 percent, the central bank said.

The oil sector grew 0.1 percent in the fourth quarter, down from 6 percent in the third quarter. In the fourth quarter of 2007, the oil sector contracted 0.7 percent.

Non-oil GDP expanded 3.6 percent in the fourth quarter, down from 8.8 percent in the same period a year earlier, the central bank said. Manufacturing contracted 0.1 percent after expanding 6.7 percent a year earlier, and construction shrank 0.9 percent, down from 13 percent growth in the fourth quarter of 2007. The mining sector contracted 19 percent.

The government hasn’t modified its forecast that the economy will expand 6 percent this year, even as both Chavez and Finance Minister Ali Rodriguez have warned in recent weeks that low oil prices are threatening growth.

“This year, the economy should remain positive, avoiding the recessionary threat that’s floating around the World,” Finance Minister Ali Rodríguez said today in comments broadcast by state television. “In the coming years, depending on the length of this crisis, it could start to cause problems for Venezuela.”

Cheaper Oil

Rodriguez said yesterday that Venezuelan oil exports have averaged $36 a barrel this year, compared with the $60 forecast the government used to draw up the 2009 budget.

The country had a balance of payments surplus of $4.6 billion in the fourth quarter, more than the $3 billion surplus a year earlier, the bank said. For the year, the balance of payments surplus was $9.3 billion, after posting a $5.7 billion deficit in 2007.

Economists, including Morgan Stanley’s Segura, say the government may be forced to raise taxes or devalue the pegged exchange rate this year to compensate for the drop in oil revenue. Rodriguez has said the government doesn’t rule those measures out.

Chavez’s decision to take $12 billion in central bank reserves last month to use for spending, and the draw-down of international accounts, may allow the government to avoid weakening the currency peg this year, Marino said.

“Transferring reserves is a sign that a devaluation may not happen,” he said. “There are two uses for that money. One is supporting the currency, and the other is for spending.”

To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net; Matthew Walter in Caracas at mwalter4@bloomberg.net.