Risk of Venezuela balance of payments crisis grows
As the Venezuelan economy is heading towards recession if not already in it, the risk of it running out of hard currency is higher, an economist warns
Venezuela's gross domestic product's expansion slowed sharply to 0.7% year-on-year in the first quarter of this year from 5.5% in the last quarter of 2012, data released on Friday showed.
The figure was weaker than consensus estimates of an advance of 1.1%.
David Rees, emerging markets economist at Capital Economics, said that while growth in the oil sector fell to 0.9% from 1.1%, "the performance of the non-oil economy was dreadful."
The growth in retail sales fell to just 3.4% in the first quarter from the fourth quarter's 9.8% advance and the mining, manufacturing and construction sectors contracted in annual terms.
The key driver of growth, said Rees, was the financial sector, which expanded by 31% year-on-year, as it has been "the key beneficiary of a monetary stimulus."
"A chronic shortage of foreign currency lies at the heart of the slowdown," Rees wrote in a market note.
Centralized economic policy and the nationalization of various companies and industries conducted by the late president Hugo Chavez left the economy reliant on imports of many goods, but because of a fall in the price of oil Venezuela's main export foreign currency is in short supply.
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"As a result, imports of many intermediate goods have fallen, in the process causing economic activity to stall and widespread shortages to emerge," Rees said.
"Looking ahead, there is no sign of an end to the dollar drought," he added.
Oil prices, which have continued to fall as global economic growth has remained subdued, could end the year below $100 per barrel; the bolivar tumbled on the black market some 75% below the official fixed exchange rate of 6.29 for one dollar, according to Rees.
"As we have warned repeatedly in the past, a sustained period of sub-$100pb oil prices could bring severe strains in the balance of payments to the fore," said Rees.
"Indeed, in the absence of renewed petro-loans from China or another sale of foreign currency debt, falling oil prices could trigger a balance of payments crisis and default on foreign currency debt."
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