By Leiselle Maraj Thursday, November 19 2009

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THE Central Bank of Trinidad and Tobago last week released its October 2009 Monetary Policy Report which detailed the economic situation in context of the current economic slowdown. Central Bank Governor, Ewart Williams, at the launch of the report last Thursday noted while indicators show the period of depressed activity will continue for the rest of the year, initial expectations were adjusted to reflect a more positive outcome. In his presentation, he explained there are signs that the global economic crisis is beginning to ease with latest International Monetary Fund (IMF) estimates reflecting an international consensus that a turnaround will take place next year. Williams warned however that there is the possibility of a jobless recovery because of the existence of significant unused capacity.

Trinidad and Tobago, he said, was able to hold its own with unemployment rising to 5.1 percent within the second quarter of financial year 2009. According to the monetary policy report, “The latest available data point to a contraction in employment by about 5,700 jobs during the second quarter with an increase in employment in agriculture and construction offset by declines in other sectors. However, the impact on the unemployment rate was muted by a decline in the labour force as approximately 5,700 fewer persons put themselves on the job market.”

There were approximately 592,500 employed workers at mid-2009 which is around the same number recorded for the same period in 2008. The report, however, stated that evidence suggests an increase of close to 15,000 persons being employed in the services industries over this 12-month period despite some reversal in the second quarter of 2009 in the number of job losses in agriculture and construction.

“Indications are that employment conditions have remained difficult during the third quarter. Between July and early October 2009, more than two dozen companies filed retrenchment notices with the Ministry of Labour and Small and Micro Enterprise Development. Close to 500 workers were affected. Meanwhile, instances of industrial action have been reported in the finance, energy, personal services and transport, storage and communications sectors,” the report stated.

Despite the improved performance of the energy sector during the second quarter with growth in output of 2.2 percent, the report noted a contraction in economic activity. Real GDP declined by 3.6 per cent in the quarter ending June 2009 following declines of 4.6 per cent and 1.0 per cent in the quarters ending March 2009 and December 2008, respectively. Economic performance was severely affected by a significant fall in non-energy sector activity.

“The contraction in non-energy real GDP was broad-based with distribution, manufacturing, construction and agriculture all registering sizeable declines. Real GDP in the non-energy sector fell by 7.5 per cent in the second quarter of 2009 compared with a decline of 8.2 per cent in the first quarter and growth of 1.2 per cent in the last quarter of 2008. The continued contraction in construction remains linked to the slowing of several major government projects since late 2008 that have not been replaced by private sector ventures of equivalent scale. The volume of wholesale and retail trade, including of construction materials, furniture and furnishings, jewellery and motor vehicles and parts, remains subdued in the face of lower foreign and domestic demand,” the report stated.

The report noted a reduction in the headline and core inflation rates due to decreases in several categories of the Retail price index (RPI). “According to the Index of Retail Sales, consumer spending declined by 11.7 per cent (year-on-year) in the second quarter of 2009 following the decline of 7.7 per- cent in the first quarter. Sales of construction materials, hardware items, household appliances, furniture, furnishings, motor vehicles, and petrol were the main categories with lower sales,” the report stated.

The Bank expects domestic inflationary pressures to remain moderate in the context of restrained domestic and external demand and foreign inflation. “Over the next six months or so, several components of the RPI are expected to be affected as tax changes announced in the government’s budget for fiscal year 2009/10, including on alcoholic beverages, tobacco and property, are passed through to consumers,” according to the report.

The report noted a very small depreciation of the Trinidad and Tobago dollar against the United State denomination. “The combination of depreciations of the Trinidad and Tobago dollar in relation to the United States dollar (USD),and of the USD relative to other major currencies, resulted in a depreciation of the local currency in nominal effective terms between April and August. Apart from currency movements, the sharp slowdown in domestic inflation resulted in a depreciation of the TT dollar in real effective terms by 4.3 per cent or a slight gain in competitiveness of locally produced goods. Available data for earlier in the year show that Trinidad and Tobago’s terms of trade worsened by 13.4 per cent on a year-on-year basis during the second quarter of 2009 as export prices principally for petroleum declined faster than import prices (6.8 per cent),” the report said.