Scotiabank: Gradual recovery for TT in 2017

“Real GDP (gross domestic product) is forecast to decline for a third consecutive year in 2016, weighed down by subdued energy prices and declines in energy output from depleting oil fields, natural gas shortages, and production/ construction delays in major petrochemical projects.” “The non-energy sector will also continue to shrink,” SE said, “due to spillovers from energy sector job losses and fiscal consolidation.

Economic activity will likely be further constrained by foreign exchange shortages, which has hindered local businesses’ ability to pay suppliers and procure key imports.” After an estimated 2.5 percent economic contraction this year, Scotiabank Economics expects a gradual recovery to materialise in 2017, “as modest improvements in energy prices, billions of dollars of investment slated for energy projects and higher natural gas output from the Juniper field, will lift real GDP growth to around 1.5 percent.” SE warned however that impediments to medium term growth will persist without further structural reforms to the labour market and the public service, as well as the removal of obstacles to doing business.

Issued on September 1, the report noted that a “modest uptick in inflation to 4.5 percent year-on-year” is expected by the end of 2016, with a five percent increase by the end of 2017 as tax reforms, currency depreciation and modest gains in commodity prices “feed through to prices.” “The Central Bank of TT (CBTT) paused its monetary tightening cycle in January, holding its benchmark repo rate at 4.75 percent, after announcing eight consecutive hikes since September 2014. The CBTT is expected to remain on hold for the time being but could be forced to resume policy tightening should currency pressure and inflation expectations rise,” the EB stated.

The EB also looked at the foreign exchange rate between TT and United States dollars. It stated that the CBTT allowed the quasi- fixed exchange rate of around 6.3 to 6.4 per US dollar (USD), in place since 2010, to weaken by over five percent year-to-date to nearly 6.7 per USD.