Venezuela: New Central Bank data reveals the crisis is only worsening
On 19 October, the Central Bank of Venezuela (BCV) released fresh macroeconomic data for the first time in six months, underscoring the severity of the crisis currently gripping the country. The economy contracted 26.8% in year-on-year terms in the first quarter of the year—the latest period for which data became available—following a 20.2% drop in the previous quarter. The downturn marked the 21st consecutive quarter of falling output and was the sharpest on record. Overall, the economy shrank 19.6% in 2018 (2017: -15.7%) and more than half since 2014, with output down to levels not seen since the late 1990s.
The steeper decline in output in Q1 2019 compared to the prior quarter reflected a sharper contraction in domestic demand. Private consumption plunged 34.8% in year-on-year terms, the most severe decline since at least 1999 (Q4 2018: -25.4% year-on-year). Despite frequent hikes to the minimum wage, runaway inflation—largely fueled by exchange rate misalignments—has significantly eroded the purchasing power of households, with high unemployment further curbing spending. Moreover, fixed investment tumbled 43.7% year-on-year in the quarter, falling continuously since Q2 2015 (Q4 2018: -39.4% yoy), while government expenditure fell 23.9% year-on-year, a markedly bigger drop from the previous quarter (Q4 2018: -8.4% yoy).
On the external front, exports of goods and services—in which oil shipments account for the overwhelming majority—rebounded strongly in Q1, contrasting a slump in the previous quarter (Q1 2019: +34.8% yoy; Q4 2018: -9.3% yoy). Imports, however, plunged at the sharpest since Q4 2017 (Q1 2019: -17.4% yoy; Q4 2018: -1.4% yoy).
Meanwhile, on the production side, activity in the non-oil segment of the economy shrank 27.3% in Q1 2019 over the same period in 2018 (Q4 2018: -20.4% year-on-year) as manufacturing output more than halved in annual terms and mining production fell more than one-third year-on-year. Furthermore, the all-important oil sector—which accounts for a significant share of foreign exchange earnings and government revenues—contracted more sharply and for the 16th month running (Q1 2019: -19.1% yoy; Q4 2018: -14.7% 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. Out-of-control inflation, dwindling oil production and a dysfunctional exchange rate regime will continue to cripple the economy, while financial sanctions aimed at choking off the government’s access to hard currency only worsen the already dire situation.