Venezuela hit by global crisis

VENEZUELA. Venezuela’s economy contracted for the first time since 2003 after a plunge in oil prices led to restricted government and consumer spending, and manufacturing output collapsed.

Gross domestic product shrank 2.4 percent in the second quarter from a year earlier, more than the median forecast for a 2.3 percent contraction from nine analysts surveyed by Bloomberg.

“While other economies are coming out of recessions, Venezuela is entering one,” said Jose Guerra, a former central bank director, in a phone interview. “There’s been a complete destruction of the productive capacity of the country.”

The economy faltered under Venezuela’s rigid foreign exchange and price controls, as President Hugo Chavez responded to a collapse in oil prices at the beginning of the year by cutting spending and controlling the sale of dollars at the official exchange rate to try to hold on to reserves.

“The manufacturing sector is going to have a negative performance, mostly because of the restriction in imports and dollars, which has caused a drop in the supply of primary materials,” said Miguel Carpio, an economist at Banco Federal CA in Caracas. “Add to that the drop in consumption, and this is going to be a very difficult year.”

The average price of Venezuelan oil exports fell 50.3 percent in the second quarter from a year earlier. Oil price tumbled 76 percent from mid-July 2008 to Feb. 12, when they closed at $33.98 a barrel. Prices have since rebounded to $72.54 a barrel.

The private sector shrank 4.1 percent, while the public sector grew 2.7 percent, the central bank said.

The economic contraction, the first since Venezuela experienced a general strike in 2003 aimed at forcing President Hugo Chavez from office, comes even as Venezuela’s inflation rate remains the highest in the Americas.