Big decline forecast for GDP in Venezuela
IMF blames political crisis for bleak outlook
• Venezuela’s economy is on track toward its second consecutive year of double-digit contraction as political crisis torpedoes activity and ordinary Venezuelans suffer runaway inflation, according to a report from the International Monetary Fund.
The IMF forecasts Venezuela’s GDP will plunge 12 per cent this year, down from a 7.4 per cent tumble the multilateral lender forecast just three months ago. The fund’s revised outlook for the Andean nation is worse than all estimates of economists surveyed by Bloomberg, and follows a dismal 2016 when t he IMF estimates GDP shrank 18 per cent.
“This political crisis poses significant downside risks for growth if it escalates further or remains unabated for a long period,” the IMF’s Western Hemisphere director, Alejandro Werner, wrote in a report released Tuesday. “If living conditions continue deteriorating, Venezuela’s humanitarian crisis could spin out of control, increasing the number of people migrating to neighbouring countries.”
Venezuela has become a stage for fierce clashes at anti-government demonstrations, with protesters being beaten and even killed. President Nicolas Maduro is pushing to rewrite the constitution, which opponents have qualified as an thinly- veiled power grab. Should Maduro convoke a constitutional convention, the U.S. government has threatened “strong and swift economic actions” that could further depress activity. The nation’s bonds have already been selling off.
Werner’s report didn’t revise the Venezuelan inflation forecast, saying only that its economy is “on a path to hyperinflation” given monetization of large fiscal deficits and loss of confidence in its currency, the bolivar. In April, the IMF forecast average inflation rates for 2017 and 2018 of 720 per cent and 2,068 per cent, respectively. The Washington- based lender maintained its forecast for a 4.1 per cent recession in 2018 that is also worse than all estimates in a Bloomberg survey.
Also receiving cuts to their GDP forecasts were Peru and Colombia. Peru will grow 2.7 per cent this year, down from the IMF’s prior 3.5 per cent call due to flooding, landslides and the impact of a corruption investigation. Colombia, likewise affected by El Nino, will grow 2 per cent versus the IMF’s previous 2.3 per cent outlook.
Werner’s report did include brighter reviews; it increased Argentina’s 2017 growth forecast 0.2 per centage points to 2.4 per cent, citing a firming recovery as private consumption and investment improve. Recent depreciation of the Argentine peso and greater demand from Brazil should support Argentina’s exports, the report said. And Mexico will grow 1.9 per cent, up from 1.7 per cent in a prior report.
“Mexico’s economy is showing near-term resilience in the face of heightened uncertainty about future trade relations with the United States, reflecting partly a strong macro policy framework,” Werner said. However, he added that tight monetary policy could weigh on private consumption going forward with uncertainty weighing on private investment.