UPDATE 3-Venezuela economy grows briskly as election nears

Thu May 17, 2012 3:14pm EDT

Related Topics

* Pre-election public spending boosting growth

* Oil exporter's economy expands 5.6 pct vs 4.9 pct in Q4

* Economy helps socialist Chavez's poll lead

By Diego Ore and Helen Popper

CARACAS, May 17 (Reuters) - Hefty state spending helped Venezuela's economy grow a brisker-than-expected 5.6 percent during the first quarter, boosting President Hugo Chavez's campaign for re-election in October.

Economists had expected robust growth in the first quarter as the socialist government pumped money into infrastructure and welfare programs in the hopes of bolstering voter support in the South American OPEC member.

The quarterly result - the highest in nearly four years - was better than most analysts expected and topped the fourth-quarter's 4.9 percent expansion, partly reflecting robust construction activity, Finance Minister Jorge Giordani said.

But strong domestic demand and growing public spending risks fueling stubborn double-digit inflation, which hit 27.6 percent last year. Giordani, however, said prices were showing signs of cooling.

"We're ahead of the target we set for ourselves, with a downward inflationary trend ... Our economy is entering a new phase of growth," he said, forecasting annual growth of 5 percent to 6 percent during the next six-year presidential term.

Current official targets see full-year 2012 growth of 5 percent. That would put Venezuela among the fastest-growing countries in South America after lagging behind its neighbors in the last few years.

Inflation, which Chavez's government has sought to fight with price controls on an array of consumer goods, is targeted at between 20 percent and 22 percent. Consumer prices rose 23.8 percent in the 12 months through April.

Construction activity surged 29.6 percent year-on-year, thanks partly to a massive state homebuilding program that is a flagship of Chavez's election platform. The oil industry, which accounts for about half of budget resources, grew 2.2 percent.

"The oil industry remains the engine of the economy, but construction is the second engine," Giordani told reporters.

Venezuela's gross domestic product (GDP) grew 4.8 percent in the first quarter of 2011 and 4.2 percent during the year.

POST-ELECTION HANGOVER?

Political analysts say the improving economy and generous welfare spending are adding to Chavez's frontrunner status, as well as sympathy over his battle against cancer.

Critics, though, say the economy - Latin America's fifth-largest - should be doing much better given record oil revenues and risks a post-election "hangover" of rising debt, untamed inflation and a probable currency devaluation.

Most opinion polls put Chavez ahead of opposition candidate Henrique Capriles, who pledges to install a Brazilian-style, center-left government if he is elected.

But five months from polling day, much could change - not least because of the mystery surrounding Chavez's condition and speculation swirling over whether he might even have to anoint a successor to run in his place if his condition worsens.

"Against this background, the government will continue its efforts to stimulate economic growth in order to bolster support," London-based Capital Economics said in a report.

"Profligate public spending may cause the budget deficit to top 7.5 percent of gross domestic product, prompting further monetization of the public debt," it said.

The Central Bank also reported a narrower first-quarter current account surplus of $7.14 billion compared with $7.68 billion during the same period a year ago. The capital account deficit was $8.61 billion during the same period.

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