Uphill challenge for T&T economy

Published: Wednesday October 1, 2008

Economic downturns in the United States used to flatten the planet.

Last week, a Standard & Poor's analyst suggested that even though the US doesn't dominate the world economy as it once did, the American slowdown can still shake up the rest of the world.

Standard & Poor's said world growth would slow in 2008 because of a US in recession and fluctuating energy prices, and challenges would remain for global economies in 2009.

Even though the economic data suggests that Trinidad and Tobago is putting up a valiant fight, growth for the country during the remainder of the year, and into 2009, remains an uphill climb with more than a few stumbles expected along the way.

In terms of macroeconomics, Central Bank Governor Ewart Williams wished last week that he had a crystal ball to predict how the global economy would evolve in the short-term.

"Even if order is quickly restored to the US financial system, the consensus is that the global economy is scheduled to undergo a pronounced slowdown," he said. "if this occurs, the reduction could prompt a fall in international oil and energy prices."

Under these circumstances, Trinidad and Tobago faces a tough choice.

Williams said: "Something will have to give; either a reduction in expenditure or a reduction in savings through the Heritage and Stabilisation Fund, which strictly speaking, is permitted under the HSF Act. Either option has unpalatable consequences."

He was speaking last Friday to local manufacturers and investors at the Hilton Trinidad, St Ann's.

"Trinidad and Tobago is in a better position to withstand a global slowdown than our Caricom neighbours, who have already begun to experience declines in tourist arrivals and in migrants' remittances. If this goes beyond a certain level our manufacturing sector which contributes US$1 billion in exports, but provides substantial employment, could be affected," Williams said.

Signs of slowdown are already there.

The rate of growth of the Trinidad and Tobago economy is expected to decelerate to 3.5 per cent to the end of the year, from 5.5 per cent in 2007.

In its Review of the Economy document laid in Parliament just before Finance Minister Karen Nunez-Tesheira delivered the 2008/2009 national budget last Monday, the Ministry of Finance says the lower 3.5 per cent economic growth reflects developments in both the petroleum and non-petroleum sectors.

Real economic activity in the petroleum sector is expected to remain virtually unchanged in 2008 with growth "stalling at 0.4 per cent, following a modest 1.7 per cent expansion in 2007".

Real GDP growth in the non-petroleum sector is expected to moderate to 4.8 per cent this year, following a 7.7 per cent increase last year.

In petrochemicals, exploration and production is expected to decline by two per cent reflecting lower oil production as reduced output from more mature oilfields and the disappointing performance of the Greater Angostura offshore oilfield resulted in a drop in the quantity of crude from 27 million barrels in the first half of 2007 to 24.7 million barrels in the first seven months of 2008, the review observed.

GDP growth in the non-petroleum sector is projected to decline this year as a result of the deceleration in the services sector to 4.9 per cent, from 6.6 per cent last year.

This projection was also driven by a slowing down in the local manufacturing sector, which is expected to decline to 4.2 per cent after peaking at 14.9 per cent in 2007, its best performance since 1998.

The services sector will also feel the pinch toward the end of 2008 and into next year.

GDP growth is expected to slow in finance, insurance and real estate (down to 8.8 per cent from 10.9 per cent in 2007.

Distribution and restaurants will also grow less (from 3.3 per cent in 2007 to 2.3 per cent in 2008). Construction and quarrying will also show less robust performance as well as transport, storage and communication which are expected to grow 8.2 per cent this year, down from 11.1 per cent in 2007.

Notwithstanding strong economic growth, a major challenge for Trinidad and Tobago continues to be the control of inflationary pressures, the Ministry of finance document stated.

There has been a sustained increase in inflationary pressure during 2008, with the latest data registering 13.5 per cent inflation.

The outlook for prices in the country is for inflation to remain at elevated levels during the remainder of 2008 and into 2009.

"This outlook is based on a number of factors including the inflationary global environment with the resultant higher import costs and upward pressure on local wages," the review noted.

Last Friday, the Central Bank noted as it raised the repo rate for commercial banks to 8.75 per cent that food prices jumped 5.6 per cent on a monthly basis- the largest increase since December 2000.

The spike in inflation reflected increases in breads and cereal prices as well as increases in meat and vegetables.

Inflationary trends are also expected to continue in the near future, the Bank said.

"Inflationary risks will remain on the upside in the coming months, especially in an environment of heightened inflationary expectations, high global food and energy prices, supply side bottlenecks in the domestic economy and mounting pressures for higher wage settlements."

Government's increased expenditure, as outlined by Finance Minister Nunez-Tesheira, will also inject liquidity into the financial system.

Hours before the Central Bank released the new inflation data, Governor Williams summarised the pressures facing Trinidad and Tobago: "There is no doubt that compared to the 1980s, we are in a better position now to withstand a global downturn. But borrowing from the current lexicon, we have by no means de-coupled and a global slowdown could present a new set of challenges and at least slow our advance to our 20/20 vision."


Source: Trinidad Express Newspapers
http://www.trinidadexpress.com/index.pl/article_business_mag?id=161382211