Saturday, July 11, 2009

Is the oil boom over? 

Well, it is mid year and despite all the dire predictions of collapse from some quarters Venezuela is still there. And no, its economy is not tanking.

However, it is certainly not doing very well either. After years of boom and ever increasing consumption Venezuelans are now starting to see their standard of living drop. Just a few tid bits:

Consumption at supermarkets is down 10% so far this year. Consumption of regulated staples such as rice and sugar is down 2%.

Overall consumer purchasing power is down about 3%.

Of course, this is not unexpected. Remember workers such as those at PDVSA and Pequiven got no raises at all this year. So their purchasing power has fallen by 10% in just the first half the year.

Inflation through the first half of the year was 10.8%. Workers earning the minimum wage only received an increase of 10% in the first half of the year so their purchasing power is also declining.

Unemployment has also started rising and the percentage of workers in the informal sector, as opposed to those having regular jobs, has increased. So jobs are now getting harder to find.

Given the above and given the .3% GDP growth in the first quarter it is fair to say that the Venezuelan economy has stalled.

Of course, it has stalled at what for Venezuela is a high level - Venezuelans have a much higher standard of living than they did ten years ago. Nevertheless, the standard of living of Venezuelans has stopped increasing even though they are very far from having a standard of living at all comparable to those who live in developed countries.

Further, with oil prices lower than in prior years it is no more obvious how Venezuela is going to get its economy growing again than how the U.S. will get its economy growing.

The oil bonanza has ended and so too has Venezuela's growth.

Why can't Venezuela seem to grow without increasing oil prices? The answer may be found here.


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