MercoPress. South Atlantic News Agency

Venezuelan economy contracts 5.8% in first quarter over a year ago

Hard times ahead for the Bolivarian revolution of Hugo Chavez

Venezuela’s economy fell deeper into recession in the first three months of the year as electricity rationing conditioned manufacturing and investment dried up because of government takeovers.

GDP shrank 5.8% in the first quarter from a year earlier, the central bank said in a statement. Private economists and consultants forecast a 7% decline in 2010. The IMF anticipates Venezuela will be the only South American country to see a decline in GDP this year.

Venezuela among the world’s five top oil producers is entering a second year of recession as President Hugo Chavez’s nationalization drive saps investment and his price and currency controls squeeze industrial output.

Industrial production plunged 9.9% in the first quarter after Chavez ordered 20% cuts in electricity usage because of a severe drought that threatened to collapse the power grid. Inflation has accelerated to a seven-year high, with prices rising 31.9% in April from a year ago.

In the first quarter, transport fell 15.9%, commerce shrank 11.6% and the financial industry sector contracted 9.7%, the central bank said. The decline stems from reduced imports, electricity rationing and the fall in investment. Venezuela’s oil industry contracted 5%, the non-oil sector fell 4.9% in the quarter and private consumption dropped 5.9%, the bank said in the report.

Chavez, who devalued the two-tier Bolivar Jan. 8 by 50% and 100%, said April 26 that the economy may shrink for a second straight year as it sheds “capitalist” consumption habits. GDP will probably shrink 2.4% in 2010, according to the median forecast of nine banks including Bank of America, Merrill Lynch and Citigroup Inc. The economy contracted 3.3% during 2009.

The government posted a current account surplus of 7.2 billion USD in the quarter while the capital account had an 11.5 billion USD deficit. Direct investment outflow reached 3 billion USD as companies pulled capital out of the country following nationalizations in the steel, cement, oil and food industries.