Venezuela: Rare release of Central Bank data reveals magnitude of crisis
On 28 May, the Central Bank of Venezuela (BCV) released macroeconomic data for the first time in nearly four years, highlighting the extent of the profound economic crisis currently gripping the country. The economy contracted a staggering 22.5% in year-on-year terms in the third quarter of 2018—the latest period for which data became available—following a 17.6% plunge in the previous quarter. The third-quarter downturn marked the 19th consecutive quarter of falling output and was the sharpest since Q1 2003, when a strike brought the vital oil industry to a halt. Overall, the economy has shrunk by around half in 2014–2018, with output down to levels not seen since the late 1990s.
The steeper decline in output in Q3 2018 compared to the prior quarter reflected sharper contractions in both domestic and external demand. Private consumption sank 24.0% in year-on-year terms, the most severe decline since at least 1999 (Q2 2018: -15.6% year-on-year). Despite frequent hikes to the minimum wage, out-of-control inflation—largely fueled by exchange rate misalignments—has significantly eroded the purchasing power of households, with spending further hampered by high unemployment. Furthermore, fixed investment has continuously contracted for almost four years and nearly halved in annual terms in Q3 (Q3 2018: -47.3% yoy; Q2 2018: -31.2% yoy). Similarly, government expenditures fell 10.1% year-on-year, following a similar pullback in the prior quarter (Q2 2018: -10.2% yoy).
On the external front, exports of goods and services—in which oil shipments account for the overwhelming majority—nosedived in Q3, albeit slightly less than in Q2 (Q3 2018: -32.1% yoy; Q2 2018: -37.6% yoy). Imports, on the other hand, rebounded in the quarter after having slumped for fifteen quarters in a row (Q3 2018: +8.2% yoy; Q2 2018: -6.1% yoy).
On the production side, activity in the non-oil segment of the economy shrank 22.0% over the same period in 2017 (Q2 2018: -16.2% year-on-year) as output in manufacturing sector almost halved in annual terms. Meanwhile, the all-important oil sector—which accounts for a significant share of foreign exchange earnings and government revenues—contracted for the 14th consecutive quarter in Q3 2018, albeit slightly less than in Q2 (Q3 2018: -25.8% yoy; Q2 2018: -26.7% yoy). Oil production has been on a steady decline since 2015 due to years of mismanagement, corruption, underinvestment and brain drain, and has been curtailed more recently by the imposition of economic sanctions.
Looking ahead, the near-term outlook is bleak. Uncertainty remains elevated over the outcome of the power struggle between President Nicolás Maduro and opposition leader Juan Guaidó. Meanwhile, the economy is expected to continue to be crippled by spiraling inflation, dwindling oil production and a dysfunctional exchange rate regime. Financial sanctions aimed at choking off the government’s access to hard currency only worsen the already dire situation.