The Venezuelan Economy Grows by 8.9 Percent in Second Quarter of 2007

By: Chris Carlson - Venezuelanalysis.com

Caracas, (venezuelanalysis.com) August 17, 2007 — The Venezuelan economy showed a growth rate of 8.9 percent in the second quarter of 2007, according to statistics released by the Central Bank of Venezuela this week. The continued growth of the Venezuelan economy for nearly 4 consecutive years is a result of many factors, including government policies to invest in social programs and raise household purchasing power, said Finance Minister Rodrigo Cabezas.

Speaking on the state TV channel earlier this week, Cabezas stated that the Venezuelan economy has entered into a phase of sustained economic growth. The nation's GDP has shown three years of consecutive growth since the end of 2003 and has a growth rate of nearly 9 percent so far this year. In 2006 the economy grew by 10.3 percent, and Cabezas assured growth of at least 8 percent for 2007.

"The estimates that we have in the national government indicate that the Venezuelan economy will grow by no less than 8 percent of GDP," he said.

The minister pointed to many factors that have led to this growth, including the high prices on the world oil market in recent years. Higher state spending in social programs and infrastructure has also contributed to the growth as have the increases in minimum wage.

"Venezuela has the highest minimum wage in Latin America," explained Cabezas, who also emphasized the "important policies of social inclusion that increase household purchasing power."

The private sector has also played a role in the economic growth with increased levels of investment. Higher levels of aggregate demand and overall consumption have led to growth in manufacturing (8.2 percent), commerce (17.9 percent), construction (15.5 percent), and transportation (14.8 percent).

According to the Central Bank report, the growth is due to "higher internal aggregate demand in investment spending as well as consumption spending, products of greater access to credit, sustained government social programs, investment in infrastructure on the part of the public and private sectors and higher real household incomes."

Growth in the non-oil sector is responsible for the higher overall growth. The non-oil sector experienced a growth rate of 10.8 percent in the second quarter of this year, mostly due to private sector growth.

Activity in the oil sector, however, actually contracted as a result of the OPEC agreement to reduce production. In this sector, the private sector contracted by 11.6 percent, and the public sector by 2.3 percent.

In the private construction sector grew by 18.7 percent and the public construction sector by 12.7 percent. According to the Central Bank, private sector construction has been mostly dedicated to non-residential building, such as shopping centers and hotels in the major cities of the country.

Construction in the public sector, on the other hand, has been mostly associated with infrastructure, roads, schools, health clinics, and irrigation with funds from the national development fund Fonden.

Cabezas said that Venezuela's growth is much above the average for the region at 3.5 percent and he emphasized that this translates as a "higher level of social wellbeing" for the Venezuelan population as well as more purchasing power.

He also stated that "a change in the structure" of national imports in favor or more capital goods would lead to higher productivity and production. The Central Bank report shows a growth of 6.2 percent in the supply of national production and an increase of 35.5 percent in imported goods.

Cabezas assured that the national government will maintain policies to fight inflation and reach its goal of 12 percent for the end of 2007. They also hope to lower unemployment, currently at 8 percent, to 7 percent by the end of the year.