Weaker recovery for TT
Thursday, May 9 2013
WHILE the Central Bank is maintaining its projection that the economy will achieve growth of 2.5 percent this year, its Monetary Report for March showed the economy “has experienced a weaker-than-anticipated economic recovery.”
The report also showed while the country’s overall unemployment rate fell to 4.9 percent from 5.4 percent at the end of the first quarter, unemployment decreased in some sectors of the economy but increased in others.
The report showed the largest year-on-year reduction in unemployment taking place in the construction industry (8.7 percent from 14.3 percent in the second quarter of 2011) followed by wholesale, retail trade, restaurants and hotels (4.7 percent from 6.4 percent) and financing, insurance and real estate (1.9 percent from 2.7 percent).
In contrast, the unemployment rate within community, social and personnel services increased from 3.8 percent to 4.8 percent. There was also an increase in retrenchment notices at the start of this year. The number of these notices served in the first quarter of 2013 increased 18.3 percent from 186 to 220.
The bulk of the notices originated in the distribution (33.6 percent); printing and packaging (19.1 percent); finance, insurance and real estate sectors (19.1 percent). There were also significant increases in the educational and cultural services (12.7 percent) and food processing (9.1 percent). The bank released this report on Tuesday.
According to the report: “Real GDP ( Gross Domestic Product) grew by around 0.2 percent for all of 2012.” The bank said while this was a welcome reversal from the decline of over 2.5 percent in 2011, it was still well below its forecast of one percent.
The bank’s index of quarterly real GDP, showed that the economy saw a return to growth of nearly 1.5 percent in the second half of 2012, following an unexpected contraction of one percent in the previous six months.
“A weaker than anticipated fiscal stimulus in the first half of 2012/2013 also seemed to be holding back a stronger pace of fiscal recovery,” the bank stated. The non-energy fiscal deficit, which is an important indicator of the size of the fiscal stimulus, was over three percentage points of GDP lower than budgeted during the first half of the fiscal year.
Capital spending — the main thrust of the Government’s investment programme to spur- economic growth “was almost seven percent lower than the corresponding period” in the 2012 financial year. “The shortfall in capital spending was mainly due to administrative delays, outstanding submission of invoices for payment and delays in the implementation of several projects,” the bank said.
On the energy front, the bank observed that while recent incoming data suggests a rebound in natural gas production, the country’s two largest natural gas producers ( bpTT and British Gas TT) “are expected to continue major maintenance operations with a significant shutdown planned in September 2013 which could dramatically affect output.”
In the non-energy sector, the bank said modest growth is expected to gradually strengthen during the course of this year “once there is a quicker pace of implementation of several government projects including the Point Fortin Highway, the Accelerated Housing Programme and roads and infrastructure works.”
The bank added, “ In a period in which businesses are cautious about leveraging themselves further, a substantial acceleration in the Government’s planned capital investment programme could also attract new private sector investments.” The bank noted that by the fourth quarter of 2012, the non-energy sector had recovered from the spillover effects into construction and manufacturing “arising from extended industrial action at the Trinidad Cement Limited (TCL) plant.
While some of the larger private conglomerates have expressed confidence in the economic prospects for TT, “the still weak pace of overall private sector borrowing from the financial system suggests that this is yet to translate into a broader manifestation of credit demand.”
Regarding inflation, the bank said, “The removal of Value Added Tax (VAT) on selected non-luxury food items which went into effect on November 15, 2012, contributed to an initial slowdown in food price inflation in subsequent months but the impact has since dissipated.”
Food price inflation eased to 13 percent in March, down from 18 percent in October 2012.
Headline inflation, which is driven by food prices, slowed to seven percent in March from close to 9.5 percent last October. Core inflation, which excludes food prices, has remained well contained, despite the reduction in the price subsidy for premium fuel.
Notwithstanding the weaker economic climate, demand for foreign exchange remained high, with the bank selling US$845 million in foreign exchange to authorised dealers over the seven months to the end of April.
TT’s net level of official reserves, while quite substantial, fell slightly to US$9,278.4 million (or 10.4 months of import cover) at the end of April from US$9,326.2 million at the end of September 2012. The TT dollar exchange rate to the US currency showed marginal movements over the review period.
Commercial banks’ excess reserves reached $6 billion in March 2013, up from $2.7 billion in October 2012. Sales of foreign exchange by the bank indirectly removed some $4.8 billion from the financial system and the bank also used open market operations to alleviate the surge in liquidity.