IT'S OFFICIAL: VENEZUELA'S ECONOMY IN RECESSION

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001469

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E.O. 12958: DECL: 2019/11/18
TAGS: ECON VE PGOV
SUBJECT: IT'S OFFICIAL: VENEZUELA'S ECONOMY IN RECESSION

REF: CARACAS 1104; CARACAS 87; CARACAS 1311; CARACAS 819

CLASSIFIED BY: DUDDY, AMBASSADOR, DOS, AMB; REASON: 1.4(B),(D)


1. (C) Summary: According to Central Bank statistics,
Venezuela's economy contracted for the second straight quarter,
which is the accepted definition of a recession. The contraction
itself was no surprise, but its size - 4.5 percent in real terms -
was greater than expected. While even the Minister of Economy and
Finance is predicting an overall contraction of up to 2.2 percent
for 2009, many analysts expect Venezuela will return to positive
but anemic growth in 2010. Economic troubles have almost certainly
contributed to a decline in President Chavez's popularity, but it
is unclear if this decline will prove a sustained political
challenge to Chavez. End summary.



What the Numbers Show




2. (U) The Central Bank of Venezuela (BCV) published third quarter
results on November 17 showing a contraction of 4.5 percent
compared with the same quarter in 2008. This decline was greater
than expected: in a Bloomberg News survey, for example, the median
estimate of 12 analysts was a 1.6 percent contraction. In line
with recent trends, non-tradables such as communications, services,
electricity and water, and construction generally performed more
strongly than tradables such as manufacturing, which declined 9.2
percent relative to the third quarter of 2009. The petroleum
sector showed a decline of 9.5 percent, which the BCV associated
with OPEC-mandated production cuts. As the economy also contracted
in the second quarter (ref A),Venezuela is technically in
recession. (Note: A recession is generally defined as a
contraction of two straight quarters, a definition accepted by
Venezuelan government (GBRV) officials. End note.)



Admitting the Obvious




3. (U) The BCV pinned blame for the contraction on the
consequences of the global financial crisis and weakened petroleum
prices, claiming GBRV policies had ameliorated the local economic
impact of these problems. While in the past GBRV officials had
stated they hoped there would not be an overall contraction in
2009, Minister of Economy and Finance Ali Rodriguez said in a
November 17 interview that the economy could close out the year
with up to a 2.2 percent overall contraction. (Note: Over the
first three quarters of 2009 the economy has contracted 2.2 percent
relative to the same period in 2008. End note.) Many analysts
believe the third quarter of 2009 will turn out to be the economy's
low point, with growth becoming less negative in the fourth quarter
and then turning positive, if anemic, in 2010.



Comment




4. (C) Venezuela's economic model has deep underlying
vulnerabilities which the GBRV to date has shown little if any
inclination to address (refs B and C). It is possible increased
government spending, which is widely expected in the run-up to
parliamentary elections scheduled for September 2010, will help the
economy rebound slightly in 2010, but we agree growth is likely to
be anemic. Pollsters generally agree that the recent decline in
President Chavez's popularity is partly due to increasing
dissatisfaction with the economy and related problems such as
electricity and water supply. As we have noted before, it is

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unclear the extent to which economic problems will pose a sustained
political challenge to Chavez (ref D),given the current state of
the opposition and Chavez's tactic of redirecting attention to
other issues such as, currently, tensions with Colombia. End
comment.
DUDDY