Venezuela Emerges from Recession with 0.6% Fourth Quarter Growth

Caracas, February 27^th 2011 (Venezuelanalysis.com) – The Venezuelan Central Bank (BCV) reported 0.6% GDP growth in the fourth quarter of 2010, a sign the oil exporting nation is emerging from a six-quarter recession. Meanwhile, the government announced a package of infrastructure and housing investments and predicted 2% growth for 2011. 

A greater supply of government-issued dollars to importers, the recuperation of internal demand, and the resolution of a drought-induced electricity crisis contributed to the fourth quarter growth, according to the BCV. 

The public sector grew by 2.6%, spurred by growth in communications, financial services, oil, transportation, and government spending on education, health care, and the military; the private sector shrank by 0.9%, with notable declines in manufacturing, construction, and mining. 

The continued stagnation in national production suggests that the government’s dual exchange rate, which supplied dollars at a preferential rate to national producers throughout 2010, did not have the desired effect of strengthening the country’s oil-dependent economy. 

The government eliminated the preferential exchange rate on January 1 this year, leaving a single exchange rate of 4.3 bolivars to the dollar. The BCV said this would simplify financial transactions and encourage investment, but opponents of the measure said it would increase inflation, which was 27% last year. 

While Venezuela’s GDP growth has lagged behind that of its South American neighbors, the OPEC nation has achieved the most equal wealth distribution in Latin America, according to the United Nations Economic Commission for Latin America (CEPAL).

BCV President Nelson Merentes told state media outlets on Saturday that Venezuela’s economy is entering a “new phase” and should grow by 2% in 2011.

Meanwhile, President Chávez announced a package of public works investments, including 2.5 billion bolivars (US$581.4 million) to improve potable water services in Miranda state, and 1.38 billion bolivars (US$321 million) to repair water lines and build treatment plants, pump stations, and storage tanks in and around Caracas.

“This is directed at the poorest areas of Caracas, as well as the middle class,” said Chavez, who will run for a third term as president in 2012.

An additional 30 billion bolivars (US$6.9 billion) is slated for public housing in 2011. Venezuela suffers from a persistent housing deficit, which turned into an emergency in late 2010 when heavy rains and floods drove 130,000 from their homes.

The public banking sector, which has grown through 17 state interventions in law-breaking banks and now encompasses nearly a third of national banking, is prioritizing credits for housing and food production. New laws have reined in financial speculation and placed quotas on banks for credits to the productive sector.

Venezuela posted a US$3.6 billion current account surplus and a US$3.6 billion capital account deficit in 2010, and maintains US$26.7 billion in reserves. The public debt increased last year as 33.5 billion bolivars (US$7.8 billion) in government bonds denominated in local currency were auctioned off, according to a presentation by Finance and Planning Minister Jorge Giordani in the National Assembly last Thursday.

Both government and private analysts have said the recent oil price hike could allow the government to increase the supply of dollars to importers and bolster public works this year.