The Venezuelan economy has started to slow down even though crude oil prices, the main engine of economic growth, recorded in 2008 their highest historic levels.
 
The Central Bank of Venezuela said that in 2008 "in real terms, the price of the Venezuelan oil basket averaged, at 1973 prices, USD 15.16, exceeding the record high of USD 14.21 in 1981."
 
In fact, Venezuela's total exports, 93 percent of which are oil sales, have totaled USD 99.92 billion, amounting to 47.1 percent of the GDP, the highest value since 1970, better than the record high of 46.1 percent recorded in 1974.
 
The oil windfall has resulted in a significant increase in public spending. In the first eight months this year, central government expenditures were 40.2 percent higher than the same period of 2007.
 
However, the Venezuelan economy has slowed down sharply in 2008 and grew 4.9 percent versus 8.4 percent in 2007. As a result, public spending appears to be losing effectiveness.
 
The analysis of the Central Bank shows that rising inflation and the increase of interest rates have hit household consumption, while the reduction of investments has limited the growth of the private sector. 
 
Private consumption has advanced 6.4 percent in 2008, compared to 18.7 percent in 2007. "The loss of purchasing power and the continuing increase in the cost of credit were factors that contributed to the slowdown of this variable," the BCV concedes.
 
In a context where low private investments have limited supply of products, the inflation rate has shown an upward trend and, as a result, private sector employees have lost 5.6 percent of their purchasing power whereas those receiving minimum wage have lost 3.7 percent. 
 
The Central Bank data show that investment, which is the key factor to secure future growth, has decreased 2.1 percent in 2008, far behind a 25.4 percent rise in 2007.
 
Although the Central Bank claims that this result "is associated with the reduction of investments in transport equipment, which is mostly an imported item, and which faced, in some cases, changes in the regulatory framework aimed to encourage domestic production," it is evident that the private sector of the economy has lost momentum.
 
What are the prospects of the economy? Everything indicates that the economic downward trend is to continue in 2009, while the oil income will drop substantially, thus forcing the government to cut public spending.
 
The dean of the Faculty of Economics of the Central University of Venezuela, Sary Levy, said in a report that "according to some estimates the expected price of the Venezuelan oil basket in 2009 will be USD 30 per barrel and, with oil output at 2.2 million barrels, oil export revenues would stand at USD 24 billion, an amount that would be enough to afford only 50 percent of current imports."
 
Translated by Gerardo Cárdenas