CARACAS, Venezuela (Reuters) — Venezuela’s economy probably shrank 2.9 percent in 2009, its first contraction after a five-year bonanza of growth and spending fuelled by high oil prices, the central bank said on Tuesday.

A bad year had been expected after shocking third quarter figures were released in November, but even last week the government was talking of a drop of about 2.2 percent.

“According to estimates by the Venezuelan Central Bank, the Gross Domestic Product experienced, in real terms, an inter-annual contraction of 2.9 percent in 2009,” the bank’s end-year report said.

The oil sector in South America’s top crude exporter — which has been hit by lower prices and falls in production — contracted 6.1 percent, while the non-oil sector fell 1.9 percent from the previous year.

Venezuela’s economy grew 4.8 percent in 2008, its fifth year of expansion on the back of high oil prices. But it entered a recession earlier this year, later in the cycle than most nations affected by the global downturn.

The government is hoping for a moderate recovery in 2010, when it is likely to increase public spending on social projects ahead of legislative elections in September.

President Hugo Chavez, who has spent a decade implementing his “21st century socialism” in the nation of 28 million people, has blamed this year’s economic performance on oil cuts mandated by OPEC to hold crude prices up.

Chavez also says GDP data is based on distorted “capitalist” methodology, and under-represents the role of Venezuela’s public sector, which has ballooned during his nationalization of large swathes of the economy.

The central bank also blamed the economic fall on “production cuts implemented by OPEC, in a context of weakness in energy demand due to the global economic crisis.”

It said the public sector grew 1.3 percent in 2009.

Oil export revenues fell in 2009 to $57.6 billion from $89.1 the previous year, the bank said.

The last time Venezuela experienced annual contraction was in 2003, when the economy shrank 7.8 percent, due largely to a lengthy shutdown of the oil sector as part of a failed opposition campaign to oust Chavez.

The bank said Venezuela’s current account surplus fell to $12.4 billion, or 6.2 percent of GDP, in 2009, from $37.4 billion the previous year. The capital account registered an $18.9 billion deficit, versus a $24.8 billion 2008 deficit.

The balance of payments registered an $11.0 billion deficit, equivalent to 5.5 percent of GDP, the report said.

International reserves stand at $35 billion.

The report, signed by bank president Nelson Merentes, said Venezuela’s social policies would prevent a slide in quality of living despite the year’s poor GDP figure.

It noted that past efforts had brought chronic poverty down from 20.2 percent of the population to 11.8 percent between 2002-08, according to official statistics.

The bank said Venezuela’s closure of eight small, private banks in recent weeks had left the system stable.

The bank closures initially spooked markets and public, but most analysts agree the risk of contagion to bigger banks is now low, despite Chavez’s comments that he will not hesitate to nationalize the whole sector if necessary.

With inflation racing at 23 percent over the first 11 months of 2009, the bank expressed its concern, and blamed the stubborn upward pressure on a dual currency rate, a sales tax rise, and falling domestic supply. (Caribnet)