Rising Oil Production Leads Venezuelan Economy to Fastest Growth in 15 Years


Nicole Yapur 01/07/2022

(Bloomberg) — Venezuela’s economy is set to grow at its fastest pace in 15 years, marking a rebound for a country that recently emerged from Latin America’s deepest recession.

Gross domestic product is expected to grow 8.3% this year, from 1.9% in 2021, according to a Bloomberg survey of five economists. The country is benefiting from an increase in oil production and seeing increased tax revenues and bank credit, suggesting that domestic demand is on the rise.

Economists had forecast growth of 5.2% in December. The central bank has not released official GDP data since 2019.

Of course, the economy is only a fragment of what it once was. A seven-year recession that ended in 2021 and was marked by bouts of hyperinflation and a migration crisis has left the country drained. Over the past decade, gross domestic product has fallen to around $49 billion, from $352 billion in 2012, according to the International Monetary Fund.

“The title could be: the country that has always done poorly is growing. But when you look at recent history, you see that’s nothing compared to the levels of recession we’ve had,” said Angel Alvarado, senior researcher at the University of Pennsylvania and founder of the Venezuelan Finance Observatory. during a presentation in which he published a growth forecast of 11.5% this year.

Alvarado said the country would need to post double-digit growth for a decade to regain the size it had in 2012.

Oil production

For now, he is benefiting as crude prices have soared nearly 50% this year to around $115 a barrel. With more foreign income coming from its biggest export, imports and consumption are on the rise.

Meanwhile, the country’s beleaguered energy sector has managed to more than double its output in the past two years to around 700,000 barrels a day. The country has the largest proven reserves of crude in the world and once pumped 3 million barrels a day.

Production, however, is stabilizing and the sector is in desperate need of more foreign investment, which is currently hampered by economic sanctions that prevent US companies from doing business with Venezuela’s state oil company.

If the United States eases sanctions, new investments could give an additional boost to production of up to 300,000 barrels per day, wrote Guillermo Guerrero, strategist at Emfi Group Ltd., in a note to clients.

While the Biden administration has kept most sanctions against the country in place, it has signaled that it is open to easing restrictions if President Nicolas Maduro makes progress toward resolving a protracted political standoff with the opposition.

“Any easing of sanctions against the oil industry would provide a significant boost to growth,” Guerrero said.

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