Economists like to measure GDP growth each quarter with respect to the previous year. I may not like it (many people don’t), but that is the custom. The alternative is to measure it with respect to the last quarters GDP and anualize it, somehow that seems more “real-time”, than to compare it to the same quarter last year. There are reasons for this, the main one that you know GDP is seasonal, so you want to compare it to the quarter a year ago, where the same seasonal factors came into play.
Thus, I had to laugh at the headline of the Central Bank report on this quarters growth (or lack of), which said:
“Venezuela’s GDP decreased by 2.2% between January and September 2009”
How is that for lying with statistics?
Because the reality is that this quarter’s GDP report is very ugly, as GDP was down 4.5%. Uglier than anybody expected. So much so, that the only positive you can find in it is that if the Central Bank is reporting it was so ugly, maybe they are not fudging the data as much as some people suspected.
But it is not the -4.5% in GDP that is ugly, it is some of the numbers behind it, which say Venezuela is in stagflation, precisely what Ali Rodriguez was telling us two months ago was not happening and would not happen thanks to the actions of the Government. I never believed Chavez’ BS that Venezuela was shielded against the world economic crisis, so I will not even go there.
Oil GDP was down 9.5%, while non-oil GDP was down 3%. But the numbers are ugly as public (Government) consumption was up 2.6%, but commerce was down 11.5%, private consumption was down 10.5%, as private investment was down 14.5%, imports declined 25.5% and exports were down 16.3%, the fourteenth consecutive quarter in which exports have gone down as the Venezuelan economy is no longer competitive due to the overvaluation of the currency. Manufacturing was down 9.5% for the quarter. Yes, -9.5%!!!
And despite all this, inflation barely abated during the year. Moreover, oil prices were up by the end of the second quarter. This all happens as the private sector has been completely intimidated as the Government believes it can do everything. But it obviously can’t.
And that is the problem, the infamous “funds” which accumulated wealth during the boom, were all consumed in sustaining current spending and not in investing. Money was used to needlessly nationalize working enterprises, rather than to back and fund companies with weak balance sheets and no investment. And the fact that there are elections in a year, does not contribute to good policy making in a Government without economic expertise.
So, only if oil prices balloon, will the current administration be able to get us out of this. For the last three months we have all heard that we have touched bottom. Ali Rodriguez even dared say that this quarters growth would be almost zero and the year flat.
No more, stagflation is here to stay and funding social programs massively is going to get very hard over the next few quarters, let alone investing in water or electricity plants and maintenance just to keep supply normal.
Not a pretty picture.