Medium-term economic risks on the rise

Por Venezuela Real - 15 de Mayo, 2008, 12:39, Categoría: Economía

ARCAYA & ASOCIADOS
Think Tank
May 2008

SUBJECT: Mounting signs of stress in the Venezuelan economy.

SIGNIFICANCE: Rising oil prices have for several years underpinned the strong growth of the economy, while masking underlying deficiencies. With growth now beginning to slow, and inflation rising, these deficiencies are increasingly coming to the fore. How the government deals with them will have far-reaching economic and political consequences.

ANALYSIS: Venezuelan economic growth has started to decelerate:
Following growth of 8.4% in 2007, the IMF forecasts 5.8% in 2008 and 3.5% in 2009.

Even these figures may prove optimistic if the US economic downturn continues into 2009 and oil prices fall from their current peak -- both of which are possible.  However, domestic developments and policies arguably pose the greatest risks to the medium- to long-term growth outlook.

Inflation.

Inflation is continuing its upward trend:
  • In April, both controlled and non-controlled prices rose by about 1.7%. For the first four months of the year, the rate of inflation has already reached 8.9%.
  • The government's initial projection of 11.0% inflation for 2008, and even the Central Bank's current forecast of 19.5%, are now clearly too low.
  • The IMF has forecast inflation of 25.7% in 2008 and 31.0% in 2009. Even these forecasts may prove relatively optimistic, given ongoing global food price inflation, and the fundamental (and worsening) domestic supply-demand imbalance
Download report ( pdf - 88 kb)






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