Low oil prices, high inflation and a poor business environment will see Venezuela's recession stretch into its third year in 2016.
The ruling PSUV government will suffer major losses at the December legislative elections, although the policymaking trajectory will remain largely unchanged due to executive power. Political risk is on the rise due to elevated tensions associated with the polls.
Inflation will remain elevated, at the highest level in Latin America, and the operating environment will remain very precarious for foreign multinationals in the country.
Major Forecast Changes
We have downgraded our real GDP growth forecasts for 2016 and 2017, due to a further downgrade to our oil price forecasts and our expectations that policymaking will still be inhospitable to private investment.
Key Risks To Outlook
Upside Risks: If the Maduro administration were to decide to take steps towards meaningful economic reforms, investor sentiment would rebound relatively quickly, lowering financing costs and increasing FDI inflows.
Downside Risks: The potential for elevated political tensions to materialise in a wider political crisis could result in a further deterioration of investor sentiment and lower economic growth. Although we have already downgraded our oil price forecasts, downside risks still exist, due to abundant supply and subdued global demand for crude.
|Real GDP growth, % y-o-y||1.3||-2.5||-5.6||-4.2|
|Nominal GDP, USDbn||399.3||584.8||208.5||289.7|
|Consumer price inflation, % y-o-y, eop||56.2||68.5||125.1||65.0|
|Exchange rate VEF/USD, eop||6.29||6.29||33.21||45.27|
|Budget balance, % of GDP||-7.3||-11.1||-11.2||-10.2|
|Current account balance, % of GDP||1.3||1.4||-4.8||-2.6|
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