Bloomberg News

Venezuela Quarterly GDP Rises Most Since 2008 on Spending

February 17, 2012

(Updates with comment in fourth paragraph.)

Feb. 16 (Bloomberg) -- Venezuela’s economy expanded at the fastest pace since 2008 in the fourth quarter as record oil revenue allowed President Hugo Chavez to boost fiscal spending ahead of elections this year.

The economy expanded 4.9 percent in the fourth quarter of 2011 from a year earlier, the central bank said today in an e- mailed statement. GDP exceeded the 4.5 percent median estimate of five economists in a Bloomberg survey and was the fastest expansion since the economy grew 7.8 percent in the second quarter of 2008. For 2011, GDP expanded 4.2 percent.

President Hugo Chavez, who is preparing to campaign for a third six-year term in the Oct. 7 election, was able to ramp up spending last year after state oil company Petroleos de Venezuela SA annual revenue rose 35 percent to $127.8 billion. A raft of new social programs for the elderly and children in extreme poverty as well as a pledge to eradicate Venezuela’s 2 million-home housing deficit are cornerstones of his re-election bid.

“We’re seeing a recuperation of private consumption supported by the government’s transfers and growth in credit,” Alejandro Arreaza, an analyst at Barclays Capital in New York, said in a telephone interview. “The social programs increase families’ purchasing power and accelerate private consumption.”

Growth Drivers

The average oil export price of $101.06 a barrel last year compared with $71.97 in 2010 and more than $17 billion of dollar bonds issued by the government and state oil company Petroleos de Venezuela SA.

The oil sector expanded 1.8 percent in the fourth quarter from a year earlier, the non-oil sector rose 5.1 percent and private consumption rose 5.3 percent, the bank said in the report.

Public spending rose 71 percent to 130.2 billion bolivars ($30.3 billion) in the fourth quarter of 2011 compared to a year earlier, according to figures compiled by Caracas-based consultancy Ecoanalitica. Spending rose 36.5 percent in real terms after discounting inflation, according to Ecoanalitica.

Growth was driven by the government’s construction projects, the bank said in today’s GDP report. The construction sector expanded a year-on-year 12.8 percent.

While public spending has fueled growth, investment has declined in Venezuela due to the government’s hostility to toward the private sector, Ricardo Hausmann, director of the Center for International Development at Harvard University, said.

“The stimulus for economic growth in Venezuela is public spending because companies have a lot of fear about investing and working in the Venezuelan market is complicated,” Hausmann said today at an economic forum in Caracas.

Spending, Inflation

An expansion in public spending is likely to fuel inflationary pressure and lead to further shortages, Hausmann said.

Inflation, as measured by the national consumer price index, rose 1.5 percent in January from December and 26 percent from the same month a year earlier, the highest among 78 economies tracked by Bloomberg.

Regulation of prices has led to shortages of milk, chicken, beef, coffee and cooking oil.

The central bank’s scarcity index, which measures the availability of consumer goods in stores, rose in January to the highest since May 2008 last month. Scarcities in 2007 played a part in voter discontent that saw a constitutional reform proposed by Chavez rejected.

The government is planning to announce further price regulations for 19 personal care products in the coming days.

Imports rose 16.3 percent in the period October to December, the central bank said.


Manufacturing grew 5 percent in the fourth quarter. Financial institutions and insurance grew the most, rising 18.8 percent. Investment rose 11.6 percent, the bank said.

The government had a current account surplus of $4.58 billion in the quarter, while foreign direct investment was $1.5 billion.

The resolution of a power shortage, which caused manufacturing to collapse in 2010, boosted the economic recovery, central bank President Nelson Merentes said in December.

Government spending will probably accelerate in 2012, pushing growth higher, Arreaza said.

Venezuela, South America’s largest oil producer and a founding member of OPEC, experienced economic contraction of 3.3 percent in 2009 and 1.4 percent in 2010.

Merentes said on Dec. 21 that the economy will probably grow between 4 percent and 6 percent in 2012.

--With assistance from Corina Rodriguez Pons in Caracas. Editor: Robert Jameson

To contact the reporters on this story: Charlie Devereux in Caracas at Jose Orozco in Caracas at

To contact the editor responsible for this story: Joshua Goodman at

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