UPDATE 2-Venezuela growth slows in Q3 amid shortages and inflation

Brian Ellsworth and Eyanir Chinea
Tuesday, 26 Nov 2013 | 4:58 PM ET

CARACAS, Nov 26 (Reuters) - Venezuela's economic growth slowed sharply in the third quarter from a year ago, the OPEC nation's central bank said on Tuesday, raising the specter of stagflation as inflation remains close to 55 percent.

GDP grew 1.1 percent compared with 4.2 percent in the same period in 2012 thanks to an expansion in banking and communications services that was partly offset by contraction in the transportation and construction industries, the bank said.

The figure indicates that the economy is starting to slow after a 2.6 percent expansion during the second quarter, potentially limiting President Nicolas Maduro's ability to sustain social spending that underpinned support for his popular predecessor, the late Hugo Chavez.

Maduro accuses the opposition of waging an "economic war" which is fueling spiraling consumer prices and chronic product shortages. Critics say those problems are proof the country's state-driven economic model is running out of steam.

"The restrictions on foreign currency and the advance of the state control model set the agenda for the Q3 figures," said Asdrubal Oliveros of Caracas-based Ecoanalitica.

Bright spots included 19.5 percent growth in financial services, helped by the central bank's steady expansion of the money supply, as well as 6.8 percent growth in communications.

The figures showed an expansion in food manufacturing even as consumers complain that they cannot find staple products such as corn flour and milk, and the central bank's scarcity index remains near historic highs.

Maduro expects negative inflation this month after he ordered merchants to slash prices of goods ranging from car parts to televisions in a move that critics called state-sponsored looting that was nonetheless applauded by consumers.

Shoppers lined up at major retail chains around the country over the weekend seeking bargains.

Even Maduro's critics say they believe the measure will help boost the ruling Socialist Party's standing in Dec. 8 municipal elections, though many wonder if it will pave the way for further scarcity down the road.

The country's statistics agency reported on Tuesday that unemployment slipped slightly, to 7.6 percent.

But the country's 6 percent 2013 growth target now appears unlikely given growth from January to September amounted to just 1.4 percent compared with same period in 2012.

The bank said the construction sector, a major driver of Venezuela's robust growth in 2012, shrank by 3.2 percent while the manufacturing sector contracted 0.3 percent.

A decline in imports, likely resulting from difficulties in obtaining dollars due to decade-old currency controls, led inventories to fall by nearly a third - indicating that part of the quarter's growth came at the expense of merchants' stocks.

The current account surplus grew in the third quarter to $4.1 billion from $2.6 billion, signaling greater financial capacity to pay for imported goods.

The deficit in the capital and financial account, a measure of a country's dependence on foreign capital, widened to $4.6 billion from $4.4 billion.

Chavez's model of using abundant oil revenue to fund popular social programs and expand state control over the economy helped him repeatedly win elections and turned him into a symbol of the resurgence of Latin America's left.

But Venezuela's private sector weakened during his 14-year rule amid a steady drum beat of nationalizations and state takeovers that left many business leaders unwilling to invest to expand or maintain operations.