Venezuela Business Forecast Report Q1 2015

Date: November 15, 2014
Pages: 45
US$ 1,195.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download

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Venezuela Business Forecast Report Q1 2015
Core Views

We expect economic growth to remain sluggish, characterised by a slowdown in private consumption, net exports and investment. The negative outlook has deteriorated further amid falling oil prices. President Nicolas Maduro has consolidated his position at the helm of the Partido Socialista Unido de Venezuela, but his popularity has waned amid economic difficulties affecting all segments of society. He will continue his predecessor's policies of elevated social spending, resulting in sizeable fiscal deficits.

Inflation will remain elevated, at the highest level in Latin America, and the operating environment will remain very precarious for foreign multinationals in the country.

Major Forecast Changes

We have downgraded our GDP forecast for the next several years, amid a growing number of business closures, soaring inflation and a downgrade to our oil forecasts. We now forecast real GDP to contract by 2.0% in 2014 and expand by only 0.8% in 2015 and 1.9% in 2016, compared with our previous forecasts for real GDP growth of 0.5%, 1.2% and 2.5% in 2014, 2015 and 2016 respectively.

Also due to our oil price downgrade, we have downwardly adjusted our forecast for the budget deficit to 12.6% of GDP in 2014 (compared with our previous estimate of 8.8%), which we expect will narrow only slightly to a deficit of 10.3% in 2015. Lower oil prices are also negative for Venezuela's balance of payments position, and we have downgraded our current account forecast to 1.4% of GDP in 2015 and 1.2% in 2016, from a previous 3.3% and 2.7% of GDP respectively.
Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook


SWOT Analysis
BMI Political Risk Index
Domestic Politics
PSUV Missteps Pave The Way For Opposition Gains
The Venezuelan public's dissatisfaction with the government's handling of the economy and security in recent quarters paves the way for opposition gains in the 2015 legislative election, particularly since the administration of President Nicolas Maduro has shown limited willingness to enact much-needed reforms. Nevertheless, any opposition inroads will be predicated on bridging internal divisions and improving outreach to poorer segments of society.
  TABLE: Political Overview
Long-Term Political Outlook
Post-Chavez Era To See Greater Turbulence
Venezuela entered a new era following the election of Nicolas Maduro as successor to the late President Hugo Chavez, but the narrowness of his victory points to an increasingly polarised electorate, which will make the country harder to govern. With the economy looking weak, Maduro could well leave office before his term expires in 2019. Regardless of who rules Venezuela, the country will face formidable economic challenges, such as excessive state control, high inflation, corruption, violent crime and a brain drain.


SWOT Analysis
BMI Economic Risk Index
Economic Activity
Deteriorating Business Climate, Lower Oil Prices Underpin Growth Downgrade
The massive distortions in the Venezuelan economy caused by complicated and ever-changing government policies, a hostile business climate and rampant inflation will cap real GDP growth over the coming years. We have downgraded our forecasts for 2014 and 2015 on the back of lower average oil prices and the prospect of continued high inflation.
  TABLE: Economic Activit y
Monetary Policy
Shortages And Market Distortions To Keep Price Pressure Elevated
Venezuelan inflation will remain extremely high in the coming months, as fundamental weaknesses in the economy exert tremendous upward pressure on the informal exchange rate and the cost of basic goods. We are forecasting end-2014 inflation of 64.1% y-o-y, and see price growth easing modestly in 2015, to an average of 57.1%.
Fiscal Policy
High Social Spending To Keep Fiscal Account Under Pressure
Venezuela's fiscal account deficit will remain deeply negative over the coming years as revenues continue to be constrained and expenditure, notably on large-scale social programmes, continue to be elevated. We note significant downside risks stemming from the recent drop in the price of oil, which may hinder the government's ability to meet debt obligations over the coming quarters.
  TABLE: Fiscal Policy
Balance Of Payments
Lower Crude Prices To Weigh On External Account
Following a major downgrade to our oil price forecasts, we have lowered our forecasts for Venezuela's current account balance. Although imports are on the decline, the fact that oil products account for nearly all of the country's export basket will weigh heavily on its balance of payments outlook.
  TABLE: Current Account


The Venezuelan Economy To 2023
Growth Outlook In A Post-Chavez Era
Although the Venezuelan economy is likely to experience a tough time over the next few years, we believe there is significant economic growth potential over the long term. In our view, a more moderate and market-friendly government that is willing to make the necessary structural reforms is needed to unlock this potential.
  TABLE: Long -Term Macr oec onomic Forecasts


Operational Risk Index
Operational Risk
  TABLE: Operational Risk
Transport Network
  TABLE: Latin America Transp ort Netw ork Ris ks
Economic Openness
  TABLE: Latin America Economic Openness Ris k
  TABLE: Imp orts By Product


Oil & Gas
  TABLE: Oil Production, 2012-2017
  TABLE: Oil Production, 2018-2023
  TABLE: Headline Retail Sect or Spending
Other Key Sectors
  TABLE: Autos Sector Key Indicators
  TABLE: Food & Drink Sector Key Indicators
  TABLE: Defence & Security Sector Key Indicators
  TABLE: Telec oms Sect or Ke y Indicat ors
  TABLE: Pharma Sect or Ke y Indicat ors
  TABLE: Infrastructure Sector Key Indicators
  TABLE: Freight Ke y Indicat ors


Global Outlook
Reality Check: Uncertainty Reigns
    Table: Global Assumpti ons
    Table: Devel oped States , Real GDP Growt H, %
    Table: Emerging Mar kets , Real GDP Growth , %
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Dairy in Venezuela US$ 350.00 Nov, 2014 · 35 pages

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