Americas > South America > Venezuela > Venezuela Outlook for 2014-18

Venezuela: Venezuela Outlook for 2014-18

2013/11/10

The country (Venezuela) is situated in Northern South America, bordering the Caribbean Sea and the North Atlantic Ocean, between Guyana and Colombia.  it has borders with Colombia for 2050 km,Colombia and Guyana for 743 km.

OVERVIEW

The period of upheaval that followed the disputed April presidential election has eased, but serious risks to political stability remain. The Economist Intelligence Unit's central forecast is that the Partido Socialista Unido de Venezuela (PSUV) remains in power, but worsening social unrest may lead the military to step in to restore order, in which case the government could collapse, forcing early elections.

Massive fiscal stimulus is expected to prevent the economy from contracting in 2013, but GDP growth is forecast to stagnate in 2014 and 2015, coming in at just 0.8% and 0.6% respectively, as high inflation erodes purchasing power.

The distorted exchange-rate system is at the heart of the economic problems faced by the authorities, but The Economist Intelligence Unit expects little improvement in 2014-18, owing to a fundamental mismatch of supply and demand for foreign currency. We expect that the government will take corrective measures to bolster the external accounts, which should result in an increase in the current-account surplus to 2.9% of GDP by 2018. However, reserves will continue to fall.

Political outlook

Nicolás Maduro announced on September 30th that three US diplomats in the Venezuelan capital, Caracas, had 48 hours to leave the country. This was an attempt to rally domestic support ahead of local elections in December.

Economic policy outlook

Political infighting continued to delay the unveiling of a currency reform bill, which is expected to reintroduce the practice of bond swaps, which provided people and companies with an alternative means of accessing US dollars. However, the black-market is expected to remain rampant.

Economic forecast

We have upgraded our GDP forecast for 2013 following surprising second-quarter data; we now expect GDP to grow by 0.8% (previously we expected a 1.1% contraction). The economy is expected to stagnate in 2014-15.
 

Outlook for 2014-18

    The period of upheaval that followed the disputed April presidential election has eased, but serious risks to political stability remain.
    Our  forecast is that the PSUV remains in power, but worsening social unrest may lead the military to step in to restore order, in which case the government could collapse, forcing early elections.
    Massive fiscal stimulus is expected to prevent the economy from contracting in 2013, but GDP growth is forecast to stagnate in 2014 and 2015, coming in at just 0.8% and 0.6% respectively, as high inflation erodes purchasing power.
    The public finances will remain opaque, with a large share of revenue and expenditure being channelled-off budget into parallel funds used at the government's discretion and without any institutional oversight.
    The distorted exchange-rate system is at the heart of the economic problems faced by the authorities, but we expect little improvement in 2014-18, owing to a fundamental mismatch of supply and demand for foreign currency.
    We expect that the government will take corrective measures to bolster the external accounts, which should result in an increase in the current-account surplus to 2.9% of GDP by 2018. However, reserves will continue to fall.


Review


    Nicolas's Maduro announced on September 30th that three US diplomats in the Venezuelan capital, Caracas, had 48 hours to leave the country. This was an attempt to rally domestic support ahead of local elections in December.
    Political infighting continued to delay the unveiling of a currency reform bill, which is expected to reintroduce the practice of bond swaps, which provided people and companies with an alternative means of accessing US dollars.
    The government announced that it would seize temporary control of a toilet paper factory in a bid to analyse its operations and supervise distribution to avert embarrassing shortages of basic consumer goods.
    Mr Maduro announced that the media will soon be obliged to carry two newscasts a day in which the government lays out "the truth". This appears to be a further step towards extending government influence over the media.
    Annualised inflation reached a new high of 45.4% in August. Rapid growth of monetary aggregates indicates that inflation will continue to climb.
    Venezuela's oil export prices reached US$107/barrel in early September, a level not seen since early 2012. The increase will not spur GDP growth, but it will help ease concerns about an imminent crisis.

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