Venezuela's GDP regains lost ground during recession and grows 5.6%

Venezuela s economy expanded 5.6% in the first quarter boosted by windfall oil revenues that resulted in a substantial inflow of petrodollars that can be spent by the government. Consequently, the country left recession behind and the economy recorded the best performance in the last 15 quarters.

GDP in the first quarter soared 5.3% compared to the first quarter of 2009, when the last economic contraction that hit the South American country started.

Jorge Giordani, the Minister of Finance and Planning, said that this brisker-than-expected GDP marks the beginning of a cycle of "sustained growth."

These economic data show a familiar pattern: Hefty public spending pushed by high oil prices- soared 5% and the money pumped into the economy, thanks to a significant wage increase for public employees and disbursements made through social projects (missions), boosted household consumption by 5.7%.

In addition to higher consumption, which has an impact on trade and on other areas of the private sector, the Executive Office launched a housing plan that resulted in a 29.6 percent growth in the construction sector -the largest expansion in this sector since the first quarter of 2007.

Nelson Merentes, the president of the Central Bank of Venezuela (BCV), praised the economic result. "We have managed to achieve both economic growth and low inflation." "Our indicators suggest that growth is going to continue in the second quarter of the year," he added.

Imbalances

While the economy grew, there is a series of imbalances that could gradually reverse this trend.

To some extent, increased public spending is the result of a rapid increase in the country s debt that cannot continue indefinitely.

Further, higher consumption involves higher demand, which cannot be met by an economy with a low production capacity. This leads to a huge increase in imports (some 48.5%), which will be difficult to maintain in the coming quarters.

At the same time, the manufacturing sector, which is a key economic sector to diversify exports, gained 0.7% only, in a context characterized by price controls and restricted access to foreign currency. Meanwhile, production in the basic industries of the Venezuelan Guayana Corporation (CVG) came to a standstill and the non-oil exports of the public sector fell 12.6%.

vsalmeron@eluniversal.com

Translated by Gerardo Cárdenas