CARACAS: 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.
