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Venezuela Business Forecast Report Q1 2015

  • November 2014
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views

We expect economic growth to remain sluggish, characterised by a slowdown in private consumption, net exports and investment. The negative outlook has deteriorated further amid falling oil prices. President Nicolás Maduro has consolidated his position at the helm of the Partido Socialista Unido de Venezuela, but his popularity has waned amid economic difficulties affecting all segments of society. He will continue his predecessor's policies of elevated social spending, resulting in sizeable fiscal deficits. Inflation will remain elevated, at the highest level in Latin America, and the operating environment will remain very precarious for foreign multinationals in the country.

Major Forecast Changes

We have downgraded our GDP forecast for the next several years, amid a growing number of business closures, soaring inflation and a downgrade to our oil forecasts. We now forecast real GDP to contract by 2.0% in 2014 and expand by only 0.8% in 2015 and 1.9% in 2016, compared with our previous forecasts for real GDP growth of 0.5%, 1.2% and 2.5% in 2014, 2015 and 2016 respectively. Also due to our oil price downgrade, we have downwardly adjusted our forecast for the budget deficit to 12.6% of GDP in 2014 (compared with our previous estimate of 8.8%), which we expect will narrow only slightly to a deficit of 10.3% in 2015. Lower oil prices are also negative for Venezuela's balance of payments position, and we have downgraded our current account forecast to 1.4% of GDP in 2015 and 1.2% in 2016, from a previous 3.3% and 2.7% of GDP respectively.

Table Of Contents

Venezuela Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
PSUV Missteps Pave The Way For Opposition Gains 8
The Venezuelan public's dissatisfaction with the government's handling of the economy and security in recent quarters paves the way
for opposition gains in the 2015 legislative election, particularly since the administration of President Nicolás Maduro has shown limited
willingness to enact much-needed reforms. Nevertheless, any opposition inroads will be predicated on bridging internal divisions and
improving outreach to poorer segments of society.
TABLE: Political Overview 8
Long-Term Political Outlook 10
Post-Chávez Era To See Greater Turbulence 10
Venezuela entered a new era following the election of Nicolás Maduro as successor to the late President Hugo Chávez, but the
narrowness of his victory points to an increasingly polarised electorate, which will make the country harder to govern. With the economy
looking weak, Maduro could well leave office before his term expires in 2019. Regardless of who rules Venezuela, the country will face
formidable economic challenges, such as excessive state control, high inflation, corruption, violent crime and a brain drain.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Deteriorating Business Climate, Lower Oil Prices Underpin Growth Downgrade 14
The massive distortions in the Venezuelan economy caused by complicated and ever-changing government policies, a hostile business
climate and rampant inflation will cap real GDP growth over the coming years. We have downgraded our forecasts for 2014 and 2015
on the back of lower average oil prices and the prospect of continued high inflation.
TABLE: Economic Activit y 14
Monetary Policy 15
Shortages And Market Distortions To Keep Price Pressure Elevated 15
Venezuelan inflation will remain extremely high in the coming months, as fundamental weaknesses in the economy exert tremendous
upward pressure on the informal exchange rate and the cost of basic goods. We are forecasting end-2014 inflation of 64.1% y-o-y, and
see price growth easing modestly in 2015, to an average of 57.1%.
Fiscal Policy 17
High Social Spending To Keep Fiscal Account Under Pressure 17
Venezuela's fiscal account deficit will remain deeply negative over the coming years as revenues continue to be constrained and
expenditure, notably on large-scale social programmes, continue to be elevated. We note significant downside risks stemming from the
recent drop in the price of oil, which may hinder the government's ability to meet debt obligations over the coming quarters.
TABLE: Fiscal Policy 17
Balance Of Payments 18
Lower Crude Prices To Weigh On External Account 18
Following a major downgrade to our oil price forecasts, we have lowered our forecasts for Venezuela's current account balance.
Although imports are on the decline, the fact that oil products account for nearly all of the country's export basket will weigh heavily on
its balance of payments outlook.
TABLE: Current Account 19
Chapter 3: 10-Year Forecast 21
The Venezuelan Economy To 2023 21
Growth Outlook In A Post-Chávez Era 21
Although the Venezuelan economy is likely to experience a tough time over the next few years, we believe there is significant economic
growth potential over the long term. In our view, a more moderate and market-friendly government that is willing to make the necessary
structural reforms is needed to unlock this potential.
TABLE: Long -Term Macr oec onomic Forecasts 21
Chapter 4: Operational Risk 23
Operational Risk Index 23
Operational Risk 24
TABLE: Operational Risk 24
Transport Network 25
TABLE: Latin America Transp ort Netw ork Ris ks 26
Economic Openness 29
TABLE: Latin America Economic Openness Ris k 29
TABLE: Imp orts By Product 30
Chapter 5: Key Sectors 33
Oil and Gas 33
TABLE: Oil Production, 2012-2017 34
TABLE: Oil Production, 2018-2023 34
Retail 37
TABLE: Headline Retail Sect or Spending 38
Other Key Sectors 41
TABLE: Autos Sector Key Indicators 41
TABLE: Food and Drink Sector Key Indicators 41
TABLE: Defence and Security Sector Key Indicators 41
TABLE: Telec oms Sect or Ke y Indicat ors 42
TABLE: Pharma Sect or Ke y Indicat ors 42
TABLE: Infrastructure Sector Key Indicators 42
TABLE: Freight Ke y Indicat ors 42
Chapter 6: BMI Global Assumptions 43
Global Outlook 43
Reality Check: Uncertainty Reigns 43
Table : Global Assumpti ons 43
Table : Devel oped States , Real GDP Growt H, % 44
Table : BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 44
Table : Emerging Mar kets , Real GDP Growth , % 45

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