Trinidad Central Bank: Review of the Economy 2009 and Outlook for 2010
http://www.caribbeanpressreleases.com/articles/6277/1/Trinidad-Central-Bank-Review-of-the-Economy-2009-and-Outlook-for-2010/Page1.html
S Coward
By S Coward
Published on 02-Feb-10
Port-of-Spain (Feb. 2, 2010)-- Based on the Central Bank’s quarterly estimates, during the third quarter of 2009, real GDP declined by 5.6 per cent, compared to the corresponding quarter of 2008. This was the fourth consecutive year-on-year decline.
Fiscal deficit of 5.3% of GDP
Port-of-Spain, (Feb. 2, 20100:-- Real GDP, Employment and Prices: • Based on the Central Bank’s quarterly estimates, during the third quarter of2009, real GDP declined by 5.6 per cent, compared to the correspondingquarter of 2008. This was the fourth consecutive year-on-year decline.
• Real GDP in the energy sector fell by 3.8 per cent, as the continued reduction in crude oil output offset a modest recovery in petrochemical production. The
Energy Services Sector Survey conducted by the South Chamber of Industry and Commerce found that the volume of business for some 50 per cent of
respondents fell during the third quarter.
• Non-energy GDP contracted by 6.8 per cent on account of sharp declines in distribution (-15.8 per cent) and manufacturing (-5.6 per cent).
• Several other indicators lend support to the preliminary assessment of the weak third-quarter growth performance: the unemployment rate in the third quarter rose to 5.8 per cent compared to 5.1 per cent in the previous quarter and 3.9 per cent during the fourth quarter of 2008; the decline in employment in the 12 months
to September was apparent in most sectors with distribution recording the largest fall (8.6 thousand) while construction lost 4.6 thousand jobs; female unemployment rose more quickly than male unemployment; the Index of Retail Sales declined by 1.9 per cent when compared to the corresponding quarter of 2008;
there was an absolute decline in bank credit outstanding; and based on a preliminary survey, a further decline in capacity utilization in
the manufacturing sector was recorded.
• With the continued decline in domestic demand in the quarter, there was a sharp fall in headline inflation, which on a year-on-year basis reached 1.5 per cent in November 2009. Food inflation slowed to just 0.4 percent while core inflation decelerated to 2.1 percent in November.
• On the basis of the estimated outturn in the first three quarters, the Bank has revised the projected decline in GDP for 2009 to 3 per cent (compared with a
projection of 2 per cent made in November 2009). This suggests a projected rise in real GDP of at least 1.3 per cent during the fourth quarter of 2009.
Monetary and Financial Developments
• Over the past few months, bank credit expansion has been anaemic in the face of slack demand. In October, there was an absolute decline in bank private
sector credit outstanding, a fall of 2.0 per cent on a year-on-year basis. Credit declined further by 4.2 percent in November 2009, with most credit categories
weakening substantially. As a result, banking system liquidity remains relatively high. Commercial bank excess reserves in December averaged in
excess of $2.6 billion despite the Central Bank’s withdrawal of $2 billion in November in the form of compulsory interest-bearing deposits.
• Banking system indicators have remained fairly robust, notwithstanding the economic downturn. Banks have continued to report healthy profits; nonperforming loans have increased marginally but are still at relatively low levels.
• In conditions of significant excess liquidity, domestic money market interest rates have plunged to record low levels. The 91-day treasury bill rate is less than 1.5 percent, down from over 6 percent at the start of the year. Commercial banks’ prime lending rates have also declined in response to the Central Bank’s 350 basis point reduction in the repo rate since March 2009.
• Reflecting the uncertain international and domestic economic outlook, the bearish runs at the end of 2008 in the local stock market persisted throughout the first half of 2009. Despite some recovery in late 2009, both the Composite Price and All Trinidad and Tobago indices lost ground during the year as a whole (9.2 per cent and 4.8 per cent declines respectively).
• Given relatively low interest rates on bank deposits and a limited array of other savings products, investors continued to favour mutual funds in 2009, especially income as opposed to equity funds.
Fiscal Operations
• Government fiscal operations in 2009 were deliberately expansionary to compensate for lagging private demand. Accordingly, budgetary operations in FY2009 resulted in an overall fiscal deficit of 5.3 percent of GDP, after years of overall fiscal surpluses.
• The government’s budget for FY2009/10 also envisages a deficit of around 5.4 percent of GDP. For the first quarter of the fiscal year (September-December
2009) actual oil prices have been higher than budgeted ($76 compared to $55 per barrel (WTI)) which would have helped the revenue position.
• Many countries are struggling with rising public debt due to ongoing fiscal stimulus programmes. In Trinidad and Tobago, a rapid return to a balanced
budget position would be important to arrest increases in the public debt.
READ MORE
• Real GDP in the energy sector fell by 3.8 per cent, as the continued reduction in crude oil output offset a modest recovery in petrochemical production. The
Energy Services Sector Survey conducted by the South Chamber of Industry and Commerce found that the volume of business for some 50 per cent of
respondents fell during the third quarter.
• Non-energy GDP contracted by 6.8 per cent on account of sharp declines in distribution (-15.8 per cent) and manufacturing (-5.6 per cent).
• Several other indicators lend support to the preliminary assessment of the weak third-quarter growth performance: the unemployment rate in the third quarter rose to 5.8 per cent compared to 5.1 per cent in the previous quarter and 3.9 per cent during the fourth quarter of 2008; the decline in employment in the 12 months
to September was apparent in most sectors with distribution recording the largest fall (8.6 thousand) while construction lost 4.6 thousand jobs; female unemployment rose more quickly than male unemployment; the Index of Retail Sales declined by 1.9 per cent when compared to the corresponding quarter of 2008;
there was an absolute decline in bank credit outstanding; and based on a preliminary survey, a further decline in capacity utilization in
the manufacturing sector was recorded.
• With the continued decline in domestic demand in the quarter, there was a sharp fall in headline inflation, which on a year-on-year basis reached 1.5 per cent in November 2009. Food inflation slowed to just 0.4 percent while core inflation decelerated to 2.1 percent in November.
• On the basis of the estimated outturn in the first three quarters, the Bank has revised the projected decline in GDP for 2009 to 3 per cent (compared with a
projection of 2 per cent made in November 2009). This suggests a projected rise in real GDP of at least 1.3 per cent during the fourth quarter of 2009.
Monetary and Financial Developments
• Over the past few months, bank credit expansion has been anaemic in the face of slack demand. In October, there was an absolute decline in bank private
sector credit outstanding, a fall of 2.0 per cent on a year-on-year basis. Credit declined further by 4.2 percent in November 2009, with most credit categories
weakening substantially. As a result, banking system liquidity remains relatively high. Commercial bank excess reserves in December averaged in
excess of $2.6 billion despite the Central Bank’s withdrawal of $2 billion in November in the form of compulsory interest-bearing deposits.
• Banking system indicators have remained fairly robust, notwithstanding the economic downturn. Banks have continued to report healthy profits; nonperforming loans have increased marginally but are still at relatively low levels.
• In conditions of significant excess liquidity, domestic money market interest rates have plunged to record low levels. The 91-day treasury bill rate is less than 1.5 percent, down from over 6 percent at the start of the year. Commercial banks’ prime lending rates have also declined in response to the Central Bank’s 350 basis point reduction in the repo rate since March 2009.
• Reflecting the uncertain international and domestic economic outlook, the bearish runs at the end of 2008 in the local stock market persisted throughout the first half of 2009. Despite some recovery in late 2009, both the Composite Price and All Trinidad and Tobago indices lost ground during the year as a whole (9.2 per cent and 4.8 per cent declines respectively).
• Given relatively low interest rates on bank deposits and a limited array of other savings products, investors continued to favour mutual funds in 2009, especially income as opposed to equity funds.
Fiscal Operations
• Government fiscal operations in 2009 were deliberately expansionary to compensate for lagging private demand. Accordingly, budgetary operations in FY2009 resulted in an overall fiscal deficit of 5.3 percent of GDP, after years of overall fiscal surpluses.
• The government’s budget for FY2009/10 also envisages a deficit of around 5.4 percent of GDP. For the first quarter of the fiscal year (September-December
2009) actual oil prices have been higher than budgeted ($76 compared to $55 per barrel (WTI)) which would have helped the revenue position.
• Many countries are struggling with rising public debt due to ongoing fiscal stimulus programmes. In Trinidad and Tobago, a rapid return to a balanced
budget position would be important to arrest increases in the public debt.
READ MORE