A Modern-Day Depression: Venezuela’s GDP Sinks At Least 10% (1)

Jan 11, 2017 4:20 pm ET

(Bloomberg) -- Venezuelans have to navigate a labyrinth of lines to buy staples like sugar or aspirin. They’ve gotten used to finding that the store shelves are empty, a frustration that sometimes boils over into looting. So they don’t really need economic data to tell them that 2016 was a terrible year.

Still, when and if the numbers do come in, they’ll likely confirm a collapse that’s almost unprecedented outside wartime. The government has long since halted regular publication of GDP figures, maintaining radio silence since February. But the International Monetary Fund’s estimate, of a 10 percent contraction, would make Venezuela the world’s worst economy last year -- and that’s toward the optimistic end of the spectrum. Private economists put the drop at as much as 15 percent.

Read more: Venezuela’s Meltdown -- a QuickTake

After the third and harshest year of what now qualifies as a full-blown depression, Venezuela has lost about a fifth of its output. A free-spending government was blindsided by the 2014 collapse in oil prices, which drained the economy of dollars, leaving many staple goods in short supply and pushing inflation to triple digits. As economists try to pin down the numbers, historians struggle to find parallels for such a slump, at least since the founding of the country two centuries ago.

“One could say this is a wartime economy,” said Jose Manuel Puente, an economist at the Institute of Advanced Studies in Administration in Caracas. “But this year Venezuela’s numbers are worse than economies at war.”

To be sure, there have been worse performers this decade: Syria and Libya saw their economies shrink by about half amid civil wars, according to the IMF. But in 2016, Venezuela stood alone. President Nicolas Maduro seemed to acknowledge as much in one of his first public addresses of the new year.

“2016 was the hardest, longest and most difficult year we have known,” Maduro said on Monday.

For a local parallel, you have to go back well beyond living memory, according to historian Tomas Straka. “In terms of phenomena such as massive emigration, hunger and abandonment of homes, this is only comparable with the War of Independence,” said Straka, who teaches at Andres Bello Catholic University, a school named after a contemporary of the revolutionary leader Simon Bolivar.

‘Everything Goes Down’

Of course, the current devastation is on a smaller scale; still, plenty of Venezuelans have fled the country, and many who stayed behind go hungry.

At the bakery he runs in the capital’s eastern district, Douglas Palencia, 40, says he’s producing about half as many loaves as in 2014. The scarcity of wheat is his biggest problem, but other ingredients sometimes run out too. “Every day it feels like we’re missing something else,” he said. “We’re constantly cutting. Everything goes down: quantity and quality.”

Shortages are driven by the government’s rationing of dollars: It’s trying to preserve them for debt payments instead of spending them on foreign goods. Maduro said last week that imports plunged to $17.8 billion last year. That’s about half the 2015 level, according to Torino Capital’s estimates; there’s no official figure for that year.

The policy is wreaking havoc among the biggest businesses as well as family firms like Palencia’s bakery. Ford Motor Co. said last month it would halt production in Venezuela until April.

Not Over

Auto sales are the kind of data that economists often turn to when trying to piece together an estimate for gross domestic product, in the absence of proper national accounts, Puente says. And in Venezuela’s case, they reveal an economy that’s come to a near-standstill. Only 236 vehicles were sold in the nation of 30 million in November; a decade ago, the domestic industry was producing more than 12,000 a month.

Another favored proxy is electricity consumption; but Venezuela’s power industry suffers from regular rolling blackouts, and may not be a useful measure anyway because electricity is subsidized to the point where, when available, it’s practically free.

Whatever the difficulties of measuring Venezuela’s decline, few economists think it’s over. The economy is set to shrink another 2.4 percent in 2017, according to the average forecast in a Bloomberg survey; the IMF says 4.5 percent.

“Shortages are going to be as bad or worse,” Puente said. “And that’s the optimistic scenario.”

(Makes editing changes throughout.)

--With assistance from Noris Soto

To contact the reporter on this story: Andrew Rosati in Caracas at arosati3@bloomberg.net.

To contact the editors responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net, Vivianne Rodrigues at vrodrigues3@bloomberg.net, Ben Holland

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