The quick look published by the Central Bank of Venezuela (BCV) at the end of the second quarter unveils a feeble economy, with the Gross Domestic Product (GDP) plummeting by 2.4 percent, together with soaring inflation rates at 20 percent ending this year.
Such a problem, characterized by two concomitant fits, that is, stagnation or shrinking of the GDP together with significantly rising prices, is technically defined as stagnation and the side effects are usually painful.
"To sum up, we could say that such scenario of stagflation has two basic components. On the one hand, price control, exchange control, nationalizations and restricted distribution of foreign currency damage supply. On the other hand, lower oil prices curtail revenues and have an impact on demand," said Orlando Ochoa, an economist and professor with Andrés Bello Catholic University (UCAB).
An assessment of prices and wages showed that the workers' purchasing power slipped 8.6 percent at the end of the second quarter of 2009, versus the same period in 2008. As a result, there is a 2.7-percent decline in private consumption.
"Shrinking is primarily due to a drop in private consumption accounting for 70 percent of the demand. This, for its part, makes an impact on production," said Pedro Palma, the president of the National Academy of Economic Sciences. |