Republic Bank: Rising food prices could have ripple effect

Trinidad and Tobago’s economy  is expected to see a 6.0 % growth, according to the Republic bank’s economic newsletter. But pointing to the recent devastation brought about by Hurricane Ivan and the resulting impact on the region, the bank said that this  could affect regional exports. Trinidad and Tobago exported some US$1.1 billion to the wider Caribbean in 2003. Already the TT Manufacturers Association has estimated losses of up to $100 million in non-oil exports next year. The bank is also warning that due to the recent flooding, one of the major challenges would be increases in food prices which have adversely affected agricultural production.

“This situation has to be addressed before it impacts the overall price level to a greater extent,” the bank warned. On the energy front, fourth quarter output is estimated to remain relatively stable despite a brief industrial protest at Petrotrin that disrupted gasoline supplies. Projected production of some 80,000 barrels of crude oil per day from BHP Billiton’s Angostura oilfield, which was initially scheduled  to commence by December, has now been pushed back to the first quarter of 2005. However, the bank noted  there were positive developments on the energy front during the fourth quarter:  the commissioning of the petrochemical plant, Nitro 2000 and the commencement of iron production by the International Steel Group.

The country, the newsletter said,  is expected to show a balance of payments surplus of approximately US$240 million in the third quarter, up US$33 million from US$207 million in the second quarter. This  surplus was helped by buoyant energy prices and the pick up in energy production particularly in LNG. As a guide, WTI oil prices averaged US$43.98 per barrel, while Henry Hub natural gas prices averaged  US$5.50 per mmbtu. Net foreign reserves are estimated at US$2.8 billion and represent approximately 6.5 months of import cover.

The monetary stance of the Central Bank continues to be accommodative, as the Bank intends to stimulate domestic investments by lowering interest rates, Republic said.  On September 15 the Bank lowered the reserve requirement of commercial banks to 11 % from 14 % and commercial banks dropped their prime-lending rate from 9.5 % to 8.75 %. However, private sector loan demand continued to grow at a moderate pace of around 5.0 %. Republic said the Central Bank has indicated its intention to tighten monetary conditions. If domestic inflationary pressures and rising US interest rates threaten its current stance.

Stocks bounding upward

The stock market, Republic Bank said, continued its upward trend during the quarter. At the end of September 2004 the Composite Index gained 6.4 % and the All TT Index gained 3.6 % from the close of the previous quarter. These gains however, marked a slow-down in the market from the first quarter of this year and the last quarter of 2003 when gains in both indices over the respective quarters were in double digits. The largest losers in the third quarter were BWIA and JMMB falling 66 % and 19.3 percent respectively, while CCMB (30.6 %) and CCN (17.6 %) were the most impressive climbers. During the quarter, a total of 83.8 million shares were traded with an approximate value of $803 million.