Trinidad & Tobago expects economic recovery to consolidate with 1.6% growth
Friday, September 20 2013 @ 05:00 AM AST
Contributed by: michaelariston
The recovery is expected to gain momentum across a widening range of economic sub-sectors resulting in an overall growth rate of 2.5 percent in the non-petroleum sector for 2013. The brighter outlook for the non-petroleum sector is premised on a projected 2.6 percent expansion in the services sub-sector, which, with 84.2 percent, is the largest contributor to non-petroleum GDP.
After three successive years of decline from 2009 to 2011, the recovery in 2012 is expected to be further consolidated in 2013. The services sub-sector is also expected to exhibit continued strengthening.
Overall, energy sector output is expected to grow by a modest 0.5 percent in 2013, representing an improvement on the contractions experienced in 2011 and 2012. The performance of GDP at the sub-sector level is expected to be mixed, reflecting an incipient turnaround in natural gas refining, exploration and production, as well as the growth momentum carried forward by service contractors, which are tempered by a milder contraction in petrochemicals.
Headline inflation on a year-on-year basis, for the first six months of 2013 remained relatively moderate, settling at 6.8 percent in June 2013. This outturn reflected the general downward trend in price levels, following a 30-month high of 12.6 percent in May 2012.
Similarly, Food and Non-Alcoholic Beverages inflation eased somewhat from 13.8 percent in January to 12.6 percent in June 2013. Core inflation remained relatively stable, settling at 2.2 percent in June 2013.
The rate of unemployment in Trinidad and Tobago fell to 4.9 percent in the third quarter of fiscal 2012 from 5.4 percent in the second quarter. Most industries, with the exception of the Construction and Petroleum and Gas industries, registered unemployment rates below the national average.
In light of the subdued economic growth environment and relatively stable core inflation, the Central Bank of Trinidad and Tobago maintained an accommodative monetary policy stance in an effort to boost the pace of economic activity. In the circumstance, the Bank reduced the Repo rate from 3.0 percent in August 2012 to 2.75 percent in September 2012, where it has remained up until June 2013. The basic prime lending rate of commercial banks responded accordingly, slipping from 7.8 percent in June 2012 to 7.5 percent in June 2013. Interest rates on time loans also declined from 7.75 percent in June 2012 to 7.5 percent in May 2013 along with the weighted average deposit rate, which dipped further to 0.02 percent in June 2013, from 0.2 percent in June 2012.
In the low interest rate environment, Narrow Money (M-1A), defined as currency in active circulation plus demand deposits expanded by 15.5 percent over the period October 2012 to June 2013, in response to the low yields on alternative investments. Broad Money (M-2), defined as M-1A plus time and savings deposits expanded in like manner, by 12.4 percent over the same period.
Notwithstanding the prevailing low interest rate environment, private sector credit expansion by the consolidated financial system remained subdued during the first six months of fiscal 2013. Private sector credit expanded to 2.4 percent in March 2013, albeit at a slower pace. At the end of March 2013, the year-on-year increase in lending by the commercial banks was up 4.5 percent; a marginal decline of 0.6 percent from October 2012. The persistent weakness in credit expansion by commercial banks to the private sector was further reinforced by non-bank lending which recorded a contraction in lending of 11.4 percent in March 2013, compared with a decline of 6.3 percent in October 2012. Consumer credit granted by the consolidated banking system has continued to expand, increasing on a twelve-month basis by 4.1 percent in March 2013, up from 2.9 percent in October 2012. In contrast, Business credit granted by the consolidated system has remained constrained; contracting by 3.1 percent in March 2013, compared with growth of 2.1 percent in October 2012. Real estate mortgage lending remained robust throughout fiscal year 2013, up 15 percent in March 2013.
In light of the consequential accumulation of excess liquidity within the financial system, the Central Bank introduced various measures to address the situation including the withdrawal of $200 million from the financial system through the issue of Treasury Bills and Notes and, in May 2013, the issuance of a $1.0 billion Treasury bond.
During the period October 2012 to June 2013, the weighted average selling rate for the United States dollar (US$) depreciated marginally by 0.13 percent to TT$6.4415 per US$ in June 2013 from TT$6.4333 per US$ in October 2012. The weighted average buying rate for the US$ marginally depreciated by 0.34 percent to TT$6.3878 per US$ in June 2013 from TT$6.3662 per US$ in October 2012. On a year-on-year basis from June 2012 to June 2013, the TT dollar depreciated by 0.21 percent from TT$6.3744 to TT$6.3878.
The overall deficit on Central Government Operations for fiscal 2013 is estimated at $6,485.4 million or 4.0 percent of GDP, compared to an overall deficit of 2.3 percent of GDP for fiscal 2012. Total Revenue and Grants is estimated at $52,984.8 million or 32.6 percent of GDP, of which Tax Revenue is expected to be the major component, contributing $45,150.6 million. Capital Revenue, however, is estimated to increase by more than ten-fold over the receipts of fiscal 2012. Total Expenditure and Net Lending is estimated at $59,470.2 million or 36.6 percent of GDP, approximately the same proportion of GDP as fiscal 2012.
The surplus on the Non-Financial Public Sector Operations account contracted by almost 42.0 percent over the period October 2012 to April 2013. The widening operational deficit of $926.7 million on the Public Utilities account hampered the performance over the period.
Net Public Sector Debt stock is expected to increase by 6.9 percent from $69,156.8 million in fiscal 2012 to $73,916.8 million in fiscal 2013. As a percentage of GDP, it is projected to decrease from 45.0 percent in fiscal 2012 to 44.7 percent in fiscal 2013.
The Net Asset Value of the Heritage and Stabilisation Fund (HSF) rose to approximately US$5.0 billion following an injection of US$42.5 million by Central Government in the third quarter of fiscal 2013.
The Balance of Payments account recorded a deficit of US$622.1 million in 2012, a reversal from the surplus of US$752.6 million in 2011. This reversal stemmed from the deterioration in the external current account by 66.9 percent mainly on account of the decline in the merchandise trade surplus. The capital account continued to show signs of improvement as the deficit was narrowed by 26.3 percent.
The Balance of Visible Trade contracted by 4.2 percent over the period October 2012 to June 2013, in comparison with the corresponding period one year earlier, as both imports and exports declined at the same rate.
A surge in exports of mineral fuels was the main driver behind the 250.6 percent rise in the Balance of Trade with CARICOM over the period October 2012 to June 2013, in comparison with the corresponding period the year before. This together with an increase in exports (excluding mineral fuels) and a reduction in the imports (excluding mineral fuels), contributed to this performance.
A total of US$9,200.7 million in Gross Official Reserves or 10.4 months of import cover is estimated to have been held by the Central Bank up to the end of 2012.