Venezuela said to be in worst recession since 1940s

The Venezuelan economy is currently contracting at a rate of nearly 10% and suffering its worst recession since the 1940s due to the oil price shock and economic mismanagement, said Capital Economics in a report.

Official GDP data has not been published since 3Q14 and inflation figures were last released in December. Capital Economics' GDP Tracker has calculated the country's economic growth at nearly -10%. The tracker takes into account oil, construction, manufacturing and consumer spending information, as well as the few official indicators available, and on-the-ground private sector estimates.

"All anecdotal evidence suggests that Venezuela is trapped in a classic EM balance of payments crisis," said Edward Glossop, the firm's emerging markets economist.

Oil accounts for 95% of Venezuela's exports and the collapse in crude prices during the past 18 months has led to a loss of export income equivalent to around 20% of GDP, according to Capital Economics.

Years of economic mismanagement have made the current crisis much worse since Venezuela, unlike some Gulf states, cannot rely on massive savings to sustain consumption during times of low oil prices.

"The result has been a collapse in economic output," the report said.

Capital Economics's forecast is in line with the IMF's forecast of a 10% contraction for 2015. For next year, the multilateral lender predicts a contraction of 6%.

IMF also forecasts inflation in Venezuela to end this year at 159% and then accelerate to 204% by end-2016.

Recessions of this magnitude tend to go beyond purely economic matters and could very well end up threatening the entire social and political fabric of Venezuela, concluded Capital Economics.

WARNING FROM MOODY'S

Venezuela's political outlook is set to face growing challenges if opposition parties make significant gains in the December 6 legislative elections, said Moody's in a report.

If Venezuela's opposition Mesa de la Unidad Democrática party wins a simple majority in the assembly, as suggested by recent polls, it could attempt to force President Nicolás Maduro from office through a recall referendum, Moody's said.

The worsening economic situation has steadily brought down Maduro's approval ratings and this has benefitted an opposition that has not presented any detailed proposals on how to turn the economy around, said the report.

The dire economic situation has also made Maduro and his government less willing to implement potentially unpopular reforms aimed at halting the downturn, the agency added.