Has Venezuela’s economy bottomed out?
After one of the biggest economic meltdowns in Latin American history, there are signs that Venezuela may finally be turning a corner.
According to some economists, the socialist government’s decisions to loosen currency controls, relax import restrictions and encourage informal dollarisation have breathed a modicum of life into an economy that has shrunk by about 75 per cent since 2013.
The change of government in the White House has also raised hopes that a solution might be found to the country’s long-running political stalemate, which might lead to an easing of US sanctions and in turn fuel a further rebound.
Credit Suisse recently predicted the Venezuelan economy would expand by 4 per cent this year, which would be its first year of growth since 2013. The bank acknowledged this was in part due to the resumption of economic activity after last year’s hit from the coronavirus pandemic, but this was “not the whole story”.
“The revival in domestic demand, which we have long been noting, is becoming more apparent in the data,” Alberto Rojas, the bank’s chief economist for Venezuela, wrote in a note to clients.
“The easing of controls and widespread use of foreign currencies in everyday transactions has rekindled economic activity — even if just slightly.”
Rojas forecasts further growth of 3 per cent in 2022. “In our view, the growth this year is not just a dead cat bounce,” he wrote.
In Caracas, people were sceptical that this amounted to any sort of meaningful recovery. According to the IMF, per capita gross domestic product in Venezuela has dropped a staggering 87 per cent over the past decade, from $12,200 a year in 2011 to $1,540 now. For the first time, the average Venezuelan is poorer than the average Haitian.
“When you’ve fallen so low, eventually you’re bound to see some sort of correction,” said Adán Celis, president of Venezuela’s manufacturers’ association Conindustria. “The government has introduced some anarchic measures of economic flexibility and that’s provided us with a little bit of oxygen but the structural problems remain.”
But a handful of other banks and consultancies also expect output to increase. Two Venezuelan consultancies, AGPV and Dinámica Venezuela, predict growth this year of 1.9 per cent and 2.3 per cent respectively.
UK-based Oxford Economics forecasts growth of 0.2 per cent this year followed by a jump of 13.1 per cent next year, although it stresses this recovery needs to be seen in context.
“This follows two years in a row [2019 and 2020] when GDP fell by a third or more,” said Marcos Casarin, OE’s chief Latin American economist. “Given the magnitude of the collapse seen since 2014, Venezuela could grow at double-digit rates for several years in a row and still not recover its pre-crisis GDP level.”
For every economist predicting growth, there are plenty who say Venezuela will suffer more pain before things finally improve.
FocusEconomics, a provider of economic consensus forecasts, recently polled 21 banks and consultancies for their views on Venezuela. The consensus was for a fall in GDP of 3.1 per cent this year followed by a rebound of 2.7 per cent next year. The IMF predicts a contraction of 10 per cent this year and 5 per cent next.
The huge differences between forecasts reflect uncertainty over the consequences of the pandemic, the impact and timing of the rollout of Covid-19 vaccines and the future of the sanctions regime.
“The evolution of US sanctions under the Biden administration remains the key determinant of the outlook,” wrote Stephen Vogado, economist at FocusEconomics.
The sanctions prohibit Venezuela from selling oil to the US and make it difficult for it to export elsewhere, although the government has found ways to get round the measures. Venezuela’s oil exports have risen slightly in each of the past five months, hitting a 10-month high in March — although they are still feeble compared with historical highs.
While oil has been the mainstay of the Venezuelan economy for the past century, the country also used to produce cacao, coffee and rice in significant quantities. It boasted a textile industry and produced chemicals, cement, steel and aluminium. Most of those industries have been decimated in the past two decades of revolutionary socialist rule.
At an outlet selling car accessories in a petrol station in the Las Mercedes neighbourhood of Caracas, store manager Alfredo Barrera said informal dollarisation had brought some degree of price stability after years of hyperinflation.
“The economy has adapted to the country’s problems,” he said. “Right now, it’s fair to talk about relative stability in terms of the currency but we’re a long way from seeing real improvement.”
At La Alicantina, a bakery that has been in business for more than 30 years, manager Douglas Palencia said sales had been hit hard by the pandemic. The shop’s windows, usually full of cakes and pastries, were empty. “I don’t have great expectations for this year,” he said.