Despite 1st quarter reversal, optimism remains about Venezuela’s economy

By Carlos Seijas Meneses

Caracas, Jun 6 (EFE).- Venezuela’s economy suffered a major setback in the first quarter that has triggered lower growth expectations for 2023, although economists remain optimistic about the remainder of the year.

The South American nation, which saw its gross domestic product shrink by nearly 80 percent between 2014 and 2021, according to independent estimations, has shown improvement since then and there were high hopes for the current year.

Ecoanalitica, a Caracas-based economic and financial consulting firm, had been expecting year-over-year growth of 8 percent, its director, Asdrubal Oliveros, told Efe.

It drastically lowered that forecast to 2 percent in March, however, due to a significant drop in consumer spending and a sharp slowdown in activity across multiple sectors over the year’s first three months.

The worsening situation is apparent on the streets of Venezuela, where the number of protests (3,303) rose by 23 percent in the first four months, according to the Observatory of Social Conflict.

Oliveros said the government has adopted an anti-dollarization policy that has had a counter-productive impact on the economy.

Those measures have included charging a 3 percent tax on payments made with hard currency (a move that has made products more expensive and led to higher inflation) and restricting banks’ ability to carry out dollar-denominated money transfers for their customers.

The Ecoanalitica director said that policy is “contradictory” because the steps toward dollarization that leftist President Nicolas Maduro’s administration had taken starting in 2018 had helped generate economic certainty and fostered greater business activity.

Another factor is the situation in the public sector, which employs nearly 30 percent of the workforce but pays extremely low salaries that hold down consumer spending.

Ecoanalitica estimates that first-quarter sales were down 15 percent by volume compared to the same period of 2022.

During this period, the Venezuelan Finance Observatory, an independent economic research firm, said the country’s economy contracted by 8.3 percent in the first quarter compared to January-March 2022.

That snapped a streak of seven-quarter streak of economic growth.

Recently, the Venezuelan Confederation of Industrialists (Conindustria) said low domestic demand was the main factor holding back manufacturing activity, although it also pointed to a lack of financing, excessive taxation and the precariousness of basic services.

Although 78 percent of manufacturers say the economic situation worsened during the first quarter, according to Conindustria, 56 percent are optimistic about a turnaround “within 12 months.”

Ecoanalitica also is forecasting improvement in the second quarter and is upbeat about the oil sector in the wake of a recent agreement signed with Chevron that allows that US energy giant to resume operations in Venezuela.

It also expects a slight uptick in consumer spending following a recent cost-of-living adjustment that, though “quite limited,” will have an impact on sectors such as food and medicine.

“Those elements make us think that the outlook for the second quarter may be better,” Oliveros said.

Even so, he warned that Venezuela’s economy remains fragile and that the situation will not improve until there is a resolution to the political deadlock between the government and opposition, who have not held talks since last November and in the interim have constantly hurled accusations at each other, including allegations of corruption. EFE

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