Venezuela's Economy Shrinks 29% in 1st Qtr, Biggest Drop Ever

Caracas, May 23 (<a href=quote.bloomberg.com>Bloomberg) -- Venezuela's economy plunged 29 percent in the first quarter for its biggest contraction ever, as an unsuccessful strike to oust President Hugo Chavez crippled oil production and consumer spending.

The drop in the gross domestic product from the same period a year ago was the same as the forecast by seven economists in a Bloomberg survey. The oil industry, which usually makes up about 30 percent of the economy, fell 47 percent while the non-oil economy contracted 21 percent.

``I don't know about the War of Independence, but this is the largest collapse since at least the 1950's,'' said Irene Costa, an analyst with Banco Mercantil in Caracas. The central bank started publishing annual GDP results in the 1950s and quarterly results in 1994.

The shrinking economy may undermine the popularity of Chavez, who may face a binding referendum on his mandate later this year, which if he loses would lead to new elections. The strike, which cost the economy $7.4 billion, helped drive unemployment to 21 percent, and polls show about 60 percent of Venezuelans want Chavez to leave.

The previous worst contraction was 17 percent in the fourth quarter of last year. The economy has lost ground for five consecutive quarters and for two of the four years that the former army lieutenant colonel has been in office.

Oil production, which fell to 150,000 barrels a day in the first week of January, rose to 3 million barrels a day by the end of March, back to pre-strike levels, according to the government. Oil output averaged 1.8 million barrels a day during the first three months of the year, down about 35 percent from the year before, the government said.

Oil Surge

The strike and concern that a war in Iraq would cut production from that country boosted crude oil prices to $34.67 a barrel on March 12 from $23.63 on Nov. 13. Prices fell to $28.85 today.

As a result of the strike, Chavez restricted foreign currency trading in January to bolster international reserves depleted by falling confidence in the bolivar.

Since then the government has sold $12 million, compared with daily sales of about $50 million before the restrictions. The lack of dollars has stifled production in a country that imports 60 percent of consumer goods and where many companies rely on foreign parts and raw material to operate. Last Updated: May 23, 2003 13:36 EDT