BMI View: As a result of high inflation and a chronic shortage of basic goods in Venezuela the economic outlook remains unstable at the beginning of our period which has seen us forecast negative year-on-year growth rates of total household spending in 2015 and 2016. Moreover, the tough regulatory environment looks set to remain a barrier to entry for international investors within the retail sector until 2019. However, the burgeoning middle-class will stimulate growth in the sector which will see a more positive outlook for retailers by the end of our period.
Low oil prices, high inflation and a poor business environment will see Venezuela's recession stretch into its second year in 2015 and persist into 2016. Following the release of data suggesting that price growth has accelerated, real private consumption growth will be even more subdued than we previously anticipated, prompting us to downgrade our real GDP growth forecasts. We have downgraded our growth forecast from contractions of 3.6% in 2015 and 1.5% in 2016 to declines of 5.6% and 2.9% respectively. We forecast that growth will return to positive territory thereafter but remain low by historical standards. Consumer purchasing power and the government's credibility for macroeconomic governance will both continue to erode, weighing heavily on real GDP growth and household spending levels. This will constrain growth in the retail sector.
Our projections have been downgraded for growth rates across all sub-sectors of the retail sector and we expect all sub-sectors of the retail sector to experience negative growth over 2015 and not recover 2014 levels till beyond 2019. High inflation is a key driver behind this trend, with inflation hitting 64% in Q314 and remaining high since. The government has implemented price controls on certain goods, subsidising basics such as milk and soap however, it is such products which are now in severe shortage in Venezuela and has led to many retailers limiting the number of purchases consumers are able to make as well as high queues. The issue of chronic shortages has been compounded by currency controls which have restricted the number of dollars needed for imports. Moreover, price controls and nationalisations have hurt local production which looks likely to lead to a dampening of purchasing power as net income is expected to fall in 2015. We expect this trend to contribute towards the forecasted decline in growth across the retail sector over the next two years as many households will be unable to afford products, particularly imported ones.
A further deterrent for foreign investors is the adverse business environment which has largely been created as a result of the restrictive import policy that has made it harder for businesses to import foreign items. The high level of government intervention has added to the adverse nature of the business environment and is partly to blame for the scarce number of international entrants to the Venezuelan retail market over the past quarter. Mandatory price controls have been introduced, interfering with private financial strategies whilst expropriation remains a constant threat.
Furnishing and home spending and personal, insurance and other spending are forecast to achieve the greatest rates of growth between 2015 and 2019, rising from USD12.8bn to USD22.6bn and USD13.5bn to USD23.9bn, respectively.
The urban population is expected to reach 94.8% by 2019.