Monday, February 05, 2007

The Venezuelan economy in a tail-spin 

Well, it looks like Chavez has finally done it. With his heated rhetoric and threats of expropriation he has taken the steam out of the recent boom in the Venezuelan economy. As has been widely reported the stock has practically imploded and with it the rest of the economy has... er, I guess I screwed up on the title of this post because it has continued to boom.

What, you say? How can the economy be doing well when the stock market does poorly? Quiet easily in fact. There is a famous saying in the United States that the stock market has predicted 9 out of the last 2 recessions - in other words the stock market going down has little to do with how the economy will actually perform.

Now, January has just finished and Vincent Leon of Datanalysis has already come out with some prelimary findings. He says consumption was up "at least" 11% in January.

Reading his article one learns that Venezuela this year didn't even see the traditional post-Christmas large dropoff in sales as people kept snapping up cars and other consumer items (and Christmas 2006 saw a 30% sales increase over Christmas 2005!). However, as much as the big ticket items get the headlines he points out that the consumption boom is also taking place among social classes D and E (remember these are the two lowest income groups that make up the large majority of the population, so this is really good).

Finally, he points out that recently the government has been restricting the sale of dollars in order to reduce imports and promote consumption of local products. This is pushing up inflation and creating some shortages but it is creating more demand for Venezuelan products. Unorthodox as a method of promoting local production but given that industrial production is up 24% maybe it is having some effect.

Anyways, in spite of the bogus headlines, Venezuela's economy keeps moving ahead.


This page is powered by Blogger. Isn't yours?