Macroeconomic Forecast Venezuela

August 2006 | Macroeconomic Forecasts

Real GDP expanded 9.4% y-o-y in Q106, the 11th consecutive quarter of uninterrupted growth. Growth has been underpinned by a strong expansion of public expenditure, itself a function of burgeoning oil revenues. This fiscal injection has been reinforced by interest rate cuts from the central bank, combining to stimulate credit creation and rapid consumption growth. However, capacity constraints are a growing problem. Although the flow of investment in fixed capital has enjoyed a sharp uptick in the last couple of years, most of this is merely replacing worn-out and obsolete machinery. If one looks at the overall national stock of net fixed capital, it has remained stagnant since the 1980s. Capacity constraints will ultimately drive up inflation; the administration's price controls are only a sticking plaster. Growth will drop off over the forecast period, as the flawed policy mix comes to the fore. If this were to coincide with another serious political crisis, it would send the economy into free-fall

If you would like to subscribe to Andean Group Monitor and gain instant access to this article, please click here to subscribe.

If you would like to take a trial to Andean Group Monitor please click on the trial link below.