2013-02-22 13:41:42 - Recently published research from Business Monitor International, "Venezuela Business Forecast Report Q2 2013", is now available at Fast Market Research
In the event of fresh presidential elections, we believe the ruling party would win, as a poor performance by the opposition in the December 2012 regional elections suggests waning support. Social tensions in Venezuela will remain elevated in a post-Chavez era.
An elevated fiscal deficit, rampant monetary stimulus, and an ongoing deterioration of foreign reserves will likely lead to currency devaluation in 2013.
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 revised up our 2012 real GDP growth estimate to 5.3%, from 4.7% previously, prompted by a significant data revision by the central bank which shows that the economy expanded by
5.6% year-on-year in the first three quarters of 2012.
Key Risks To Outlook
Upside Risks: Higher than expected oil prices and more aggressive monetary stimulus could see real GDP growth exceed our 2.6%
Full Report Details at
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forecast in 2013.
Downside Risks: The potential for elevated political tensions to materialise in a wider political crisis, particularly once President Chavez is out of the picture, poses a significant downside risk to our growth forecast.
Partial Table of Contents:
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Political Instability To Heighten After Chavez
- Venezuela's political trajectory will remain highly uncertain as President Hugo Chavez's ongoing illness prevents him from attending the inauguration of his fourth term on January 10. However, we believe that the ruling party will take steps to extend Chavez's legacy as long as possible, in order to maintain political stability and dominance over the country's institutions. That said, we do not rule out a more extensive political crisis, with the potential for military intervention, as political and social tensions are set to heighten in the near term.
TABLE: LOOKING BEYOND CHAVEZ
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
- The Venezuelan political landscape will very likely remain polarised over the next 10 years, with potential for pent-up tensions to lead to unrest. Although it is becoming increasingly clear that President Hugo Chavez's time in office is coming to an end due to his worsening health, we anticipate a continuation of his policies in the near-to-medium term. However, a gradual shift to more business-friendly policies in the long term cannot be ruled out, though it would likely not be a smooth transition.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Growth To Halve In 2013, With Substantial Downside Risks
- We forecast a sharp slowdown in real GDP growth in Venezuela, from 5.3% in 2012 to 2.6% and 2.8% in 2013 and 2014 respectively, as high inflation, combined with lower capacity for government spending, will take its toll on the economy through weaker consumption and investment. Moreover, we note that given the potential for an extensive political crisis to take place in the near term following uncertainty surrounding President Hugo Chavez's new term, there are substantial downside risks to our forecast.
TABLE: GDP BY EXPENDITURE, REAL GROWTH %
Exchange Rate Policy
Devaluation In 2013 Despite Political Uncertainty
- While the rising prospects of a new presidential election in Venezuela in the near term could delay key political decisions, we still forecast a devaluation of the bolivar in 2013. Indeed, after posting its largest fiscal deficit in recent history in 2012, the government will seek to bolster its dollar-denominated oil revenue. Moreover, with a legislative election scheduled for 2015, the ruling party has a strong incentive to devalue the currency as soon as possible, in order to continue financing elevated levels of social spending and rebuild popular support.
TABLE: EXCHANGE RATE
Balance Of Payments
Expected Devaluation Offers Limited Benefits To Exports
- We forecast Venezuela's current account surplus to widen from 7.7% of GDP in 2012 to 8.2% in 2013 and 2014. Indeed, an expected currency devaluation will see imports shrink, though a weaker bolivar will do little to bolster export competitiveness given that 95% of total exports are dollar-denominated oil sales. Moreover, we believe that capital flight, in anticipation and in the aftermath of a cu rrency devaluation, will drive a large financial account deficit, resulting in record low levels of import cover.
TABLE: CURRENT ACCOUNT
Chavez's Elevated Social Spending Legacy To Continue
- While an expected currency devaluation will bolster the Venezuelan government's fiscal revenue, we forecast the budget deficit to remain at historically elevated levels in the coming years. We believe that the rising prospects of a new presidential election round in Venezuela to take place in the near term, amid the delicate state of health of President Hugo Chavez, will motivate the ruling party to maintain elevated social spendi ng to ensure popular support remains strong, particularly once Chavez is out of the picture.
TABLE: FISCAL POLICY
TABLE: LATIN AMERICA 2013 CENTRAL BANK POLICY RATE FORECASTS, %
TABLE: LATIN AMERICA 2013 REAL GDP GROWTH FORECASTS, %
TABLE: LATIN AMERICA 2013 EXCHANGE RATE FORECASTS (LCY/US$), EOP
Chapter 3: 10-Year Forecast
Full Table of Contents is available at:
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