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Editorial/Opinion

 

Dimitra DeFotis: Venezuela GDP
shrinking at +4% pace, Goldman says


The chaos being seen right now in Venezuela, these images and
eyewitness accounts show us what the mainstream media isn't reporting.


Calculating economic growth in Venezuela is an art given the dearth of current government statistics.

But Goldman Sachs extrapolates that lower imports and oil prices are likely to result in a roughly 4% average decline in GDP in recent quarters. Goldman's Mauro Roca and David Reichsfeld write: By exploiting the elevated correlation between imports and economic activity to the order of 80% we forecast economic growth based on a cointegration equation between real GDP and imports. We find that the estimated contraction of imports as mild as it may look is still consistent with average GDP contractions of approximately 5% year over year in both 4Q14 and 1Q15, which are also broadly consistent with our current GDP estimates for those quarters (-4.1% year over year)

Coincidentally with the sharp decline in international reserves, the unofficial exchange rate has depreciated 60% since the start of the year, but half of that weakening occurred during the past month, when the parallel exchange rate jumped from 275 to 425 VEF/USD [Venezuelan bolivar/U.S. dollar] Such a rapid pace of exchange rate depreciation would typically reflect the acceleration of nominal instability that commonly precedes periods of unrestrained inflation (or hyperinflation) or a balance of payment crisis (currency run). Nonetheless, in an economy subject to exceptional government intervention and centralized control of exchange rate flows, it additionally could be the result of tightening controls on the use of foreign currency currently distributed by the rationing mechanisms. In the case of Venezuela, all these factors, to a different extent, are likely playing crucial roles.

It is clear that reduced exports were the main driver behind the contraction in the trade surplus we do not rule out that the contraction in realized imports could be more important than estimated.

The  Market Vectors Emerging Markets High Yield Bond ETF  ( HYEM ), which has invested in  Venezuela  bonds, is down more than 2% this month; the fund is up nearly 5% so far this year. The  PowerShares Emerging Markets Sovereign Debt Portfolio  ( PCY ), which also has assets invested in Venezuela, is down 2.9% this month, contributing to its year-to-date loss of 2%. More broadly, equities in the region are lower this year: The  iShares Latin America 40 ETF  ( ILF ),  down 0.4% today, and is down more than 5% year to date.

 

 

Dimitra DeFotis, journalist. Barron's Senior Editor @ barronsonline writing on emerging markets, energy interest.. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was published by Barron's, on June 11, 2015. Petroleumworld reprint this article in the interest of our readers

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.

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