MercoPress. South Atlantic News Agency

Venezuela economy expands 2.5% in 2Q, down from 4.8% in first quarter

Armando Leon from the Central banks expects the economy to grow at the same rate in the second half of 2011

Venezuela’s second quarter (2Q) Gross Domestic Product (GDP) was 2.5%, below the expectations of the Government and below the first quarter GDP’s 4.8% rate, probably indicating that the Government’s effort to prop the economy via fiscal spending is losing steam.

The oil sector grew 0.8% during the quarter while the non-oil sector expanded 2.8% in the same period. In the non-oil sector, financial (up 9%), water and electricity (up 7.3%) and retail (up 6.8%) led the way. In contrast, despite the Government’s push in housing, construction continued to contract in the second quarter, shrinking by 2.3%. Government construction did grow by 1.9%, but private construction shrank by 8.4%.

As has been the case in recent quarters Government services increased by 3.6% while the manufacturing sector grew by only 1.3% despite the growth in consumption.

“Clearly, the private sector is lagging in investment as fiscal expenditures expand and imports grow” said Dr. Miguel Octavio, head of research at Venezuelan investment bank BBO.

“Imports grew an inordinate 12.4% in the quarter, while fixed investments dropped by 3.6%, showing that fiscal spending is simply not having the internal impact the Government requires”.

However, Armando Leon, a board member of the Central Bank, predicts the Venezuelan economy will continue growing in the second half of this year at the same pace as experienced in the first half.

Venezuela’s economy contracted 1.4% last year following a decrease of 3.3% in 2009.

In the stock market assets rose 0.33% in the last week of August marking a return to low trading volumes, with barely 75,000 shares traded. Of the five stocks that changed price, four were up and one was down.

However the Venezuela Stock Market Index closed at 99,920.90 and is now up 52.93% for the year to the end of August.