Venezuelan Economy Grows 7.1% in 19th Consecutive Quarter of Growth

Reflecting the increase in living standards and national production sovereignty, Venezuela’s gross domestic product (GDP) increased by 7.1% in the second quarter of 2008, relative to the same quarter in the previous year.
Venezuela's quarterly GDP growth, 1998-2008 (Banco Central de Venezuela)

Mérida, August 20, 2008 (– Reflecting the increase in living standards and national production sovereignty, Venezuela’s gross domestic product (GDP) increased by 7.1% in the second quarter of 2008, relative to the same quarter in the previous year.

This growth is significantly higher than the 4.9% experienced in the first quarter of the year. It means an overall growth of 6.0% for the first half of the year.

The total demand for goods and services (domestic aggregate demand) also grew, driven by the revival of gross fixed investment.

This year in particular the government has focused on achieving economic sovereignty, which involves producing and processing products in Venezuela, rather than importing them. Investment in construction grew by 13.5% and in machinery and equipment by 4.4%.

The economic growth was sustained as much in oil related activity as in non-oil related activity, with the latter’s growth at 7.8%.

The favourable result of oil activity in the second quarter resulted mainly from the growth of production of crude oil, by both state and mixed companies, with an overall increase in the amount of external sales.

The main non-oil activities that contributed to the growth of Gross Value Added (GVA) (where goods and services obtain extra value in the productive process) were communications  (24.6%), construction (11.7%), community, social and personal services (9.4%), business (8.9%), transport services (6.5%), manufacturing industry (4.5%) and the agricultural sector (3.9%).

Such results were principally brought about by higher demand, as much by spending on consumption as by investment and favored by the implementation of the plan of public and private investment, the continuation of the revival of family earnings, the higher level of employment and the consolidation of the government’s social programs at a national level.

The private manufacturing industry continued its pattern of expansion for the 19 consecutive quarters. This sector’s growth by 4.6% was fundamentally determined by growth in the manufacture of clothing (21%), paper (19.4%), non-metallic minerals (8.9%), wood products (8.1%), food, drinks and tobacco (7.1%), rubber and plastic manufacture (5.6%), printing and publishing (4.8%) and manufacture of chemical products and substances (1.4%).

The food industry continued to make significant progress in meeting the growth in demand, especially with the production of fats and oils (10.8%), bread products (10.1%), and the production, processing and preservation of meats and their derivatives (8.8%).

Construction activity registered a rebound in the second quarter, showing an increase of 11.7%, which was derived from an increase of 1.5% in the public sector and 23.2% in the private sector. Public sector growth was driven by the corresponding growth in the oil companies.

Private sector growth can be attributed to the housing industry, which grew by 18.8% and to non-residential construction (23.3%).

Owing to increased social investment, government sectors have also shown some economic growth (4.5%), with teaching and education growing by 4.8% and health by 1.6%.

Commercial activity grew by 8.9%, mainly as a result of the increase in the supply of tradable goods- both of national origin, and imported.

The volume of exports increased by 3.3%, with non-oil exports at US$1.6 billion, a decrease of 5.8% compared to the second quarter of last year, owing to less sales of the key products, such as common metals and auto vehicles.

Imports of goods increased by 10.8%, with an expenditure of US$11 billion. Main imports included medicine and pharmaceuticals, chemical substances, machines and equipment, oil, fats, meat, milk, cereal, and mobile phones.

Total assets increased in both the public and private sectors.

Public sector assets registered an increase of 38.4%, mainly owing to the amount of government deposits in Fonden (National Development Fund) and the joint China-Venezuela Fund, as well as the increase in outstanding receivable bills from the oil industry.

In the private sector, assets increased by 22.2%, which mainly comes from deposits in foreign banks and from an increased availability of foreign exchange through the issue of government bonds in foreign currency.

Other notable economic changes include the shift of employment from the informal to the formal sector, going from an almost even 50/50% in July 2004, to 57.5% in the formal sector and the remaining in the informal sector, in July 2008.

Inflation in 2008 has been significantly higher than last year (32.2% up from 22.5%), but the average under Chavez (20.9%) is still significantly lower than the previous two presidents (59.4% and 45.3% respectively).

Food scarcity in July dropped to 12.1%, down from a short-term peak of 24.7% in January of this year.

Public debt as a percentage of GDP fell to 19.3% in 2007, from 38.4 in 2004 and 45.9% in 1996.

It is worth noting that this growth comes during a time of international economic volatility. In comparison, United States’ 2007 GDP growth was 2.2%, Canada’s was 2.7% and Colombia’s, 6.5%. In 2007, Venezuela’s GDP grew by 8.3%.

Other countries, notably many from Africa, experienced quite high GDP growth. However because GDP is a total figure, it obscures inequalities.

In a graduation ceremony of the Cultural Mision, Chavez argued that a cultural revolution must accompany this well being of the country.

“Fascism is defeated with consciousness and consciousness is achieved with culture and knowledge,” he said.