In the fourth quarter of 2009, private consumption downsized 6.7 percent, according to the numbers provided by the Central Bank of Venezuela (BCV).

Some factors influenced the consumption throwback -high inflation rates, deteriorating income and purchasing power, troubles with supply of goods, restrictions to consumer credits and deteriorating consumer confidence.

Luis Vicente León, senior partner and chief executive officer of pollster Datanálisis, said that at the end of the year, the high prices recorded as a result of increasing production or import costs, take shape. This, in addition to a decreasing real income, moves consumption backwards, as it was the case for ending 2009.

"Decrease of real income, shrinking demand, and consumer distrust are an explosive cocktail for consumption," he said.

Between December 2009 and December 2008, the consumer confidence index shed 23 percent, "the most significant drop since this indicator was first recorded."

León thinks that the people feel that the country entered a stage of crisis or recession, and this is harming consumer confidence.

He added that last December, 66.6 percent of people deemed the country's economic situation as negative. This means that two thirds of the population think that the country is doing bad or very bad. "And this limits their decisions on investment and consumption, as they are protecting themselves for the future."

Expectations for this year were also dire, because around 62 percent of people claimed in December that 2010 was to be worse than 2009. This reduces any interest in investment.

The availability of goods, another factor that adversely affects consumption, also declined at the ending of 2009. León noted that during that period, investments dropped, thus affecting supply.

"Consumption plunges, not only due to the demand, but also because of supply. People mostly buy food; they use 40 percent of their budget for it; but the production of cars also shrank as well as white goods and almost all imported products," he added.

As a matter of fact, the retail sales index of the Central Bank of Venezuela (BCV) shows that, by comparing December 2009 to December 2008, sales of vehicles plummeted 22.26 percent; food, 35 percent; pharmaceutical products and cosmetics, 19.86 percent; household appliances, 18.21 percent, and textiles, apparel and footwear, 30.78 percent.

León fears that consumption in 2010 could drop even more, because in addition to the above-mentioned factors which hit demand last year, there is now the electricity crisis.

Datanálisis anticipates that consumption will decline from 0 to -2 percent ending this year. These numbers could be worse if electricity failures are not solved in the short term.

Translated by Conchita Delgado