Facing fierce criticism at home and abroad, President Nicolás Maduro was sworn in to serve a new six-year term on 10 January after being reelected in the May 2018 presidential election that was widely condemned as illegitimate. This comes against a dire economic backdrop as the economy remains in crisis with no end in sight. Oil prices slumped after hitting four-year highs in October, which, coupled with faltering oil production—down nearly a third from January 2018 to 1.1 million bpd in November 2018 according to secondary sources—have undoubtedly put a strain on crucial export earnings and government revenues. On a brighter note, in a bid to revamp output, two major oil deals between the state-run oil firm, PDVSA, and U.S.-based Erepla and France’s Maurel & Prom were announced in early-January. Erepla is set to invest up to USD 500 million in three oilfields, while Maurel & Prom would invest USD 400 million for a 40% stake in the Petroregional del Lago joint venture.
The near-term outlook remains bleak, with GDP seen contracting for the
sixth consecutive year in 2019. The economy is expected to continue to
be crippled by runaway inflation, dwindling oil output and a dysfunctional
exchange rate regime. Financial sanctions which hinder the country’s
ability to access foreign credit and restructure debt only exacerbate the
dire situation. Given the severity of the crisis, conditions may emerge
for a political transition, a scenario that some of our panelists have been
factoring into their forecasts. FocusEconomics panelists see the economy
contracting 9.7% in 2019, which is down 1.3 percentage points from last
month’s forecast. In 2020, the panel sees GDP falling 1.4%.
• Panelists estimate inflation ended 2018 at over 1,500,000%. Despite
the recent currency overhaul and authorities’ pledges to scale back
monetary financing, analysts contend the measures are unlikely to tame
hyperinflation. Our panel sees inflation surging to over 100,000,000% by
the end of 2019, before falling to around 1,500,000% by the end of 2020.
• Despite the flexibilization of exchange rate controls under the recent
Economic Recovery Plan, the gap between the official and non-official
rate continues to widen. The official DICOM exchange rate came in at
862 VES per USD in the 11 January auction, while the parallel market
rate fell to 1,890 VES per USD on the same day. Our panelists expect the
official rate to end 2019 at 1.8 billion VES per USD before rising to 9.9
billion VES per USD by the end of 2020.
