Press Release Globalization and Trade Latin America and the Caribbean World

Venezuelan Recession Likely Ended in Second Quarter

September 02, 2010

Contact: Karen Conner, (202) 293-5380 x117Mail_Outline

September 3, 2010 En Español
Future Growth Will Depend on Government Fiscal Policy, Public Investment

For Immediate Release: September 3, 2010 En Español
Dan Beeton, 202-239-1460

Washington, D.C. – The Venezuelan economy, which was in recession in 2009, likely began its recovery in the second quarter of 2010, according to a new report from Center for Economic and Policy Research.

The report finds that the Venezuelan economy grew at an annualized rate of 5.2 percent in the second quarter, on a seasonally adjusted basis.

“The forecasts of most analysts for the Venezuelan economy have turned out to be wrong again, as they were throughout most of the country’s prior economic expansion,” said Mark Weisbrot, co-director of the Center and lead author of the paper.

In June, Morgan Stanley predicted Venezuela’s GDP would shrink by 6.2 percent in 2010 and 1.2 percent in 2011. The IMF projects that the Venezuelan economy will contract by 2.6 percent for 2010 and grow by less than 1.4 percent annually over the next five years – i.e. negative per capita GDP growth. The IMF underestimated Venezuela’s economic growth for the four consecutive years 2004, 2005, 2006, and 2007, by enormous margins: 10.6, 6.8, 5.4, and 4.7 percentage points, respectively.

The authors stress that economic growth in the foreseeable future will depend on the government making and keeping a commitment to maintain high levels of aggregate demand; and that it will also have to make sure that adequate foreign exchange is supplied to producers for imported inputs. If that is done, they argue, the expansion can accelerate and be sustainable, despite high inflation or other current economic problems.

The report notes that widespread predictions of rapidly accelerating inflation after the January devaluation did not materialize, with inflation over the last three months actually lower than it was before the devaluation.

“The government still has a relatively low public debt and is unlikely to face foreign exchange constraints,” said Weisbrot. “It is therefore is in a position to stimulate economic growth as necessary through public investment and spending.”

The report notes that future economic growth is not guaranteed, but will depend on the government’s macroeconomic policies.


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