Yesterday, the Central Bank of Venezuela published its quarterly report on economic activity, covering the third quarter of 2010.
Since these documents are close to impenetrable for a lot of people, I thought it would be a good idea to spell out the few things you can take away from it.
1. Venezuela continues to be walloped by a recession most of our neighbors have escaped from. GDP is – roughly – a measure of the value of the total goods and services produced in a country. In other words, you add up the value of what each and every person, company, or government office produces in a particular period of time (a year, a quarter), and you get the country’s GDP.
When GDP goes up, we are producing more, and presumably, we are earning more – because when we produce stuff and sell it, the proceeds eventually go to somebody inside the country.
There is a close link between GDP and a country’s income, and GDP per capita is frequently interpreted to represent the average income earned by a country’s inhabitants. That is why GDP per capita is sometimes used to measure how developed different countries are.
You hear a lot in the news about recessions. Technically, a country is in recession when its GDP contracts for two consecutive quarters. In other words, you measure GDP in a quarter and compare it to what you were producing in the same quarter a year before, and if you are producing less, then your quarterly GDP is falling. If that trend continues in the next quarter, you are in a recession.
Venezuela has been in a recession for several quarters now, and the GDP figures that came out yesterday confirm that we are not yet out in the clear. While other countries in South America are posting very healthy growth rates, we are mired in the mud. In fact, some people say we are the worst performing economy in the continent. But of course, the BCV being part of the government, the press release spins this away by saying that our fall is not as deep as it used to be.
Cold comfort that is.
2. Perhaps producing less oil may explain why we are in such a rut. You may think that the recession is caused by less production of everything. As it turns out, most of the fall in private output happened a year ago, so when you compare this quarter with the same quarter in 2009, you come out with private economic activity being roughly even.
The real drag on GDP is “oil activity.” In other words, we are producing 2.1% less of the stuff included in “oil activity” than we were a year ago.
But it’s not like oil is all that important to Venezuela’s economy. Just one of many numbers, right?
3. This and that – some are better, some are not. Non-oil GDP is down 0.2%, a slight fall. This does not mean that every non-oil activity is roughly even with a year ago. Hidden underneath that 0.2% drop is a wildly heterogeneous picture. When you count the goods and services produced in an economy, some sectors of the economy are going to show up as growing, while others are going to appear to be shrinking.
In Venezuela, the breakdown suggests the weakest sectors are mining, electricity, banking, and commerce.
This is crucial, because it helps explain the overall drag in the economy. In Venezuela, if commerce, banking, and electricity (not to mention oil) are shrinking, that tells you right there your economy is in trouble. It’s not the same as finding out that the local production of iPods was plummeting.
But not all is gloom and doom. There are economic activities that are growing: communications, government services, and transportation.
In other words, we are texting a whole lot more than last year, the government is ever expanding, and there’s a lot more trucking activity going on – presumably thanks to the restitution of trade with Colombia and the general uptick in imports, which we discuss next.
In a nutshell, our economy is evolving. We mine less, produce less electricity, and shop less. But we are texting more, government is growing, and we are importing lots of trinkets.
I call that “drifting to a veritable sea of happiness.”
4. Manufacturing can barely get it up. One of the few bright spots is that manufacturing activity seems to have increased slightly, 1.8% to be exact.
What exactly are we manufacturing more of? Food, drinks, chemicals, electrical appliances, clothing. What are we manufacturing less of? Well, a lot of things, but in particular, metal, furniture and machinery production are plummeting.
5. Paging Bob the Builder. Construction is a big part of these reports for two reasons. First of all, construction is a pro-cyclical indicator of economic activity. What this means is that when the economy is doing well, construction activity usually shows up as booming, and when it is not, it usually shrinks. In that sense, construction is a good “thermometer” for the economy.
The other reason is that the construction industry employs a lot of people, so a fall in this sector is particularly painful to a lot of folks, and typically shows up in unemployment figures.
Well, according to the BCV, we’re simply not building stuff. The government is building less than a year ago – 3.8% less, to be exact. But the private sector is building way less than a year ago, 13.9% less.
I have no idea why this could be… and yes, I’m being snarky.
6. We may be producing less, but we’re importing a lot more. The BCV’s report also includes numbers on the evolution of the supply of goods in the economy. The supply of goods is different than GDP because GDP measures what was produced in Venezuela, while the supply measures what is actually available in the country, including stuff we did not produce ourselves.
As it turns out, the supply of goods is growing by 1.5%. Now, we know GDP is shrinking, so it’s not like supply is growing because we’re making more stuff. No, supply is growing because we are importing more than a year ago, 6.3% more to be exact.
So there you have it. We’re producing less oil, texting more, earning less, growing government more, building less, producing more drinks and less heavy machinery, and importing a whole bunch of stuff.
The BCV calls it an economic report. I call it the economic reality of 21st-Century Socialism.