2013-09-17 08:56:48 - Fast Market Research recommends "Trinidad & Tobago Business Forecast Report Q4 2013" from Business Monitor International, now available
Due to weakening US demand for oil and gas imports, a still-developing non-energy sector, and continued delays at key maintenance projects within the energy sector, we forecast Trinidad & Tobago (T&T)'s economy will post an average expansion of only 3.0% between 2013 and 2017. That said, this implies that the we expect the economic recovery to continue strengthening over the coming quarters following an average contraction of 1.2% between 2009 and 2012.
The Trinidadian government's efforts to stimulate the economy by ramping up capital expenditures will see the nominal fiscal deficit widen to 3.1% and 3.3% of GDP in 2013 and 2014 respectively, from 2.5% in 2012. We expect the deficit to peak in 2015, after which an increase in
revenue from energy exports to Asia and a moderation in expenditures will lead the budget deficit to shrink to 1.7% of GDP by 2017.
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T&T's current account will remain in surplus in the coming years, due to stronger energy export growth and an increase in remittance inflows. We believe that the current account surplus will help to cover a financial and capital account deficit, although we note that rising foreign direct investment into the energy sector could lead to a more moderate deficit than in prior years.
The Central Bank of Trinidad & Tobago (CBTT) will hold the benchmark policy rate at 2.75% through end-2013, maintaining its accommodative stance to spur the country's nascent economic recovery.
In 2014, stronger economic growth will see the CBTT shift towards addressing inflation concerns, and we forecast 50 basis points of hikes to 3.25% next year.
Major Forecast Changes
While we continue to expect a recovery of 2.5% real GDP growth in 2013, from 1.2% in 2012, we have revised down our real GDP forecast for 2014 to 2.6%, from 3.0% previously, as a mixed outlook for T&T's energy sector will prevent the country from seeing faster economic growth over the coming years.
Key Risk To Outlook
Should energy sector maintenance projects continue to drag down production over the coming months, we could see real GDP growth come in below our forecast of 2.5% for 2013. Such a scenario would also pose downside risks to our forecast for interest rates to remain on hold at 2.75% through end-2013.
Should the recovery in real GDP growth begin to falter, the central bank could decide to let the currency depreciate in order to provide a further boost to export competitiveness. Indeed, factoring in the TTD's appreciation in real terms, the central bank could become more concerned with re-balancing external account pressures towards greater export strength, rather than protecting demand for imports.
Partial Table of Contents:
Major Forecast Changes
Key Risk To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Warner's Return To Heighten Political Uncertainty
- We believe that the decision by former Trinidadian National Security Minister Jack Warner to form a new political party will likely prompt defections from the ruling coalition, creating uncertainty over the government's policy trajectory and heightening short-term political risk. Moreover, Warner's successful return to electoral politics could have implications for the country's investment profile, given his controversial reputation abroad.
TABLE: TRINIDAD & TOBAGO POLITICAL OVERVIEW
Shifting Trade Winds Will Lead To New Diplomatic Relationships
- We believe Trinidad & Tobago (T&T) will seek to forge stronger diplomatic relationships with countries in Asia and Latin America over the coming years, as reduced demand from the US for T&T's energy exports necessitates that the government build new trade partnerships. Moreover, we believe the planned establishment of a formal diplomatic mission in Beijing in November points to T&T's particular focus on China as an emerging political ally and trade partner.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Economic Recovery To Continue At Slow Pace
- Trinidad & Tobago will see stronger economic growth in 2013 and 2014 on the back of a rise in non-energy output, and increasing household and government consumption. Moreover, although the energy sector will be held back by ongoing maintenance delays, we expect growth to remain in positive territory, bolstering the ongoing economic recovery. That said, stagnating production of oil and gas over the long term will prevent growth from rapidly accelerating through 2017.
TABLE: MACROECONOMIC INDICATORS
Exchange Rate Policy
TTD: Sideways Trading To Continue
TABLE: CURRENCY FORECAST
TABLE: EXCHANGE RATE
Balance of Payments
BoP To Improve From 2012 Levels
- Trinidad & Tobago's current account will remain in surplus in the coming years, due to stronger energy export growth and an increase in remittance inflows. We believe that the current account surplus will help to cover a financial and capital account deficit, although we note that rising foreign direct investment into the energy sector could lead to a more moderate deficit than in prior years.
TABLE: CURRENT ACCOUNT
Fiscal Stimulus Will Lead To Wider Deficit
- The Trinidadian government's efforts to stimulate the economy by ramping up capital expenditures will see the nominal fiscal deficit widen to 3.1 % and 3.3 % of GDP in 2013 and 2014 respectively, from 2 .5% in 2012. We expect the deficit to peak in 2015, after which an increase in revenue from energy exports to Asia and a moderation in expenditures will lead the budget deficit to shrink to 1.7% of GDP by 2017.
TABLE: CENTRAL GOVERNMENT CAPITAL EXPENDITURE-FISCAL YEAR 2013, TTDMN
TABLE: FISCAL POLICY
Rates To Remain Low As Growth Recovers
Full Table of Contents is available at:
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