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Venezuela economy shrinks 5.8% in fourth quarter

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by Kay Mitchell

The Venezuelan economy, which relies heavily on revenues from its oil reserves for its economic growth, contracted by 5.8% in the fourth quarter of 2009 compared with a year earlier.

According to the Central Bank of Venezuela (BCV), the economy shrank 3.3% during the 2009 year.

The BCV said the global economic crisis and “the weakness of the price of oil and output reductions” set by producer group Organisation of Petroleum Exporting Countries (OPEC), were responsible for the contraction.

Venezuela is the largest oil producer in South America.

OPEC, of which Venezuela is a founding member, said the Latin American country had to reduce oil production by 364,000 barrels per day in 2009, leaving production at around 3 million barrels a day.

The BCV also said Venezuela’s oil sector shrank 10.2% against a year earlier, while the non-oil sector contracted 4%.

Meanwhile, the Venezuelan Government has set a “modest” economic growth target of 0.5% in 2010.

Juan Pablo Fuentes at Moody’s Economy.com said: “Venezuela did better than most countries at the beginning of the global recession, but now it’s in greater trouble.”

The Venezuelan Government has ordered companies to cut energy consumption by a fifth or face indefinite power cuts.

Venezuelan President Hugo Chavez recently signed a decree declaring an “electricity emergency” to help his Government deal with power shortages.

However, Asdrubal Oliveros, a director at consulting firm Ecoanalitica in Caracas said: “If the electricity situation is resolved in the second quarter, we could see growth in the second half.

“But if blackouts occur every 36 hours, the outlook is negative and the economy could contract as much as 5 percent this year,” he said.

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News posted: March 3, 2010

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