Venezuela sees economy shrinking 1.9%

Venezuela’s economy shrank an estimated 1.9 percent in 2010 in a second year of recession as the South American nation lags in the recovery cycle after the global financial crisis, the Central Bank said Thursday.

The OPEC member’s economy contracted 3.3 percent last year when it entered recession, but President Hugo Chavez’s government says Venezuela is now pulling out of it and is on course for 2 percent growth in 2011.

The report said oil GDP shrank 2.2 percent in 2010 while the non-oil economy fell 1.8 percent.

After estimated annual inflation of 1.6 percent in December, the annual consumer price rise for 2010 will be 26.9 percent, up from 25.1 percent last year, the bank said.

That makes Venezuela’s inflation among the highest in the world.

Central Bank President Nelson Merentes said electricity rationing — caused by a shortage of rain earlier this year — was a factor in the economy’s performance in early 2009 before ”signs of recovery” could be seen later in the year.

SOCIALIST POLICIES

Private consumption was down 2.8 percent, while internal demand fell 1.7 percent, the report said.

Worst-hit areas during the year included manufacturing, down 11.9 percent, construction, which fell 7.3 percent, and the financial sector, off 6.9 percent.

The best-performing sector was telecommunications, which grew 7.8 percent.

In his 12th year in power, Chavez has said Venezuela’s economic problems are due to the global financial scenario and reduced oil exports from OPEC quota cuts.

Critics, however, say he is leading the economy to ruin due to nationalizations, a byzantine system of currency controls and other policies intended to entrench “21st century socialism” in Venezuela.

The bank report said Venezuela’s exports fell 12.5 percent in 2010, while imports dropped 5.5 percent.

The 2010 current account surplus was estimated at $13.9 billion, or 7.3 percent of GDP, while the capital account deficit was forecast at $20.1 billion.

That would compare with a current account surplus of $8.6 billion and a capital account deficit of $14 billion in 2009.