What is a recession?

The reason why this issue has taken centre stage lies with the definition of a recession. In his book titled The Basics of Economics, David Edward O’Conner, states: “The Real GDP declines during a contraction. A contraction of at least two consecutive quarters, or six months is considered a recession.” However, the National Bureau of Economic Research (NBER), the independent body which is responsible for determining whether the US economy has fallen into a recession, judges a recession to be: “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” Although most of the recessions announced by the NBER have experienced two or more consecutive quarters of contraction of real GDP, not all recessions have.

So what is Trinidad and Tobago’s situation? In the fourth quarter of 2008, there was a contraction in real GDP of 1.1 percent, and during the first quarter of 2009, the real GDP fell by 3.3 percent.

The Unemployment rate during the third quarter of 2008 stood at 4.7 percent. In the fourth quarter of 2008, it fell to 3.9 percent. By first quarter 2009, the unemployment rate rose to 5.0 percent.

Overall retail sales increased during the third and fourth quarters of 2008 but declined during the first quarter of 2009. Motor vehicle and parts sales also declined in the first quarter of 2009 (-8.4 percent).

Energy and non-energy revenues over the period October 2008 to June 2009 declined significantly (-25.6 percent), compared to the period October 2007 to June 2008, while expenditures over the period have barely fallen (-0.27 percent).

Imports during the first two months of 2009 are considerably lower than that of January and February 2008. Non-energy exports over this period have also declined.

Analysis of the data for the two quarters ended March 2009 indicates that the TT economy is in fact contracting, and under both the O’Conner and NBER definitions, it can be concluded that technically TT is in a recession. However, the country is not in crisis since during the second quarter of 2009 there has been a sustained improvement in energy prices which will help to increase the value of our energy exports. Also, our import cover for the period January to July 2009, at 10.3 months, is slightly higher than that of the same period in 2008. Although increasing, our unemployment rate is still relatively low at 5.0 percent. We look forward to the results for the quarter ended June 2009 to see if the trends observed in merchandise trade in the first quarter of 2009 will have improved.

The critical question that must now be asked is, what measures will the Government adopt in the upcoming national budget to deal with the rising levels of unemployment and a decline in key growth sectors of the economy?

The Chamber has long been calling for the diversification of our economy and we see this as an ideal opportunity for Government to prioritise those critical areas to ensure growth and prosperity of TT.

The Trinidad and Tobago Chamber of Industry and Commerce means business in Trinidad and Tobago ...and beyond. Please visit our website at www.chamber.org.tt.