By Clint Chan Tack Wednesday, August 12 2009

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FACING THE MUSIC. Central Bank Governor Ewart Williams, from left, Inspector of Financial Institutions Carl Hiralal and Colonial Life Insurance Compan...

THE COUNTRY is not in a recession but will face hard economic times in the new financial year. This means Government may not be able to “loosen its belt” too much when it presents the 2010 Budget in Parliament next month.

This was the grim economic picture painted yesterday by Central Bank Governor Ewart Williams at a news conference at the Eric Williams Financial Complex, Port-of-Spain.

Williams explained a recession is defined as “a significant decline in economic activity, spread across the economy, lasting more than a few months, normally visible in production, employment, real income and other indicators.” Given these indicators Williams said, “I remain unconvinced that the current state of the economy would meet the accepted definition of recession.”

However, Williams said the available data showed “the economic slowdown is going to be with us for the remainder of the year.”

While there are tentative signs of an economic recovery in the United States, Williams said: “Unfortunately in Trinidad and Tobago, we are not seeing those signs.” There is also uncertainty whether the bank’s projections for zero to one percent growth this year will be realised. “All indications are that there would be a decline in real GDP for 2009 as a whole. If this occurs, it would be the first annual decline in real GDP since 1993,” the Governor stated. With a risk of unemployment increasing to between six to seven percent, Williams said the Labour Ministry reported approximately 1,000 persons received retrenchment notices between April and mid-July.

“Preventing unemployment from getting out of hand is a key policy objective,” he advised. While Government projected to run a temporary deficit of $1.6 billion in the current financial year, Williams said there was room for a small fiscal deficit of two to three percent of GDP in the next financial year.

“This budget is going to be a difficult one to configure. We have been over the last few years accustomed to buoyant energy revenues and even with the best assumptions we are unlikely to have them,” Williams said. Even if world oil prices reach the US$60 to $70 per barrel level, Williams observed that “the gas price remains in the doldrums and it is likely to stay low.” “Therefore the revenue envelope is likely to be very constrained,” he added.

Saddled with large economic infrastructural needs and embedded subsidies difficult to remove, Williams said Government will only be able to complete existing projects and have little room to start new ones.

Although inflation fell to 8.4 percent in June, Williams said the prospects for international food price reversals and uncertainties regarding local agricultural output could keep inflation above the targetted six percent level. Should inflation continue to fall, Williams said: “There is considerable room for interest rate reduction.”

Stating that fiscal incentives alone were not enough to ease factors currently restraining private sector expansion, Williams said Government needed to elicit the help of the private sector and labour movement in these efforts. Identifying crime as one such factor, he added: “Lagging consumer and business confidence could make for a slow recovery in private sector credit demand.”