MercoPress. South Atlantic News Agency

Venezuelan economy forecasted to contract strongly in 2009

More bad news for President Hugo Chavez

Venezuela's economy contracted 4.5% in the third quarter, far more than expected, and the second straight quarterly contraction this year after a drop in oil income affected public and consumer spending, the Central Bank said Tuesday.

The oil economy shrank 9.5% in the third quarter, compared with the same period in 2008, and non-oil gross domestic product shrank 3%. The bank said those figures meant the Venezuelan economy had contracted 2.2% in the first nine months, compared with the same period of 2008.

“This behaviour has come in a climate strongly affected by the consequences of the global financial crisis and the weakening of oil prices,” the bank said.

Although the government has not mentioned the word “recession” since it was expecting the worst of the global impact was over, some economists believe the OPEC country is effectively in its first recession since 2003.

With a negative GDP figure now almost certain for this year, the Venezuelan government is hoping for a moderate recovery in 2010 when it is likely to increase public spending on social projects ahead of legislative elections in September.

The poor numbers come at a critical moment for President Chavez since insufficient rainfall in the Orinoco river basin, plus lack of maintenance and infrastructure and waste have condemned many of the 28 million Venezuelans urban dwellers to water rationing and surprise blackouts.

“Shower in three minutes at the most and use a torch when going to the toilet at night” have been Chavez repeated recommendation to fellow Venezuelans in the media and in his “Aló president” program. He has also contracted Cuban experts to force “clouds to rain” by attacking them with a “special lightning”.

Venezuela's oil export revenues so far in 2009 have fallen to about half their 2008 level, and populist leader Hugo Chavez ordered government spending cuts earlier in the year. Private investment has withered in Venezuela in recent years, following a series of industrial and agricultural nationalizations.

Venezuela's economy contracted 2.4% in the second quarter while the economy last year had grown by 4.8%.

The last year that Venezuela experienced annual contraction was in 2003, when the economy shrank 7.8%, due largely to a lengthy shutdown of the oil sector as part of an opposition campaign to oust Chavez.

In its third quarter trade accounts Venezuela posted a 5.1 billion USD current account surplus, less than the 17.3 billion USD surplus a year earlier, the Central Bank said.

The capital account showed a deficit of 1.7 billion for the third quarter, well below the 10.4 billion USD deficit in the same period of 2008, the bank said.