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Trinidad and Tobago Business Forecast Report Q3 2014

  • May 2014
  • -
  • Business Monitor International
  • -
  • 32 pages

Core Views

We forecast real GDP growth in Trinidad & Tobago to accelerate to 2.6% in 2014 and 3.0% in 2015, up from the central bank's preliminary figure of 1.6% growth in 2013, as recent tax reforms incentivise greater investment into the twin islands' key energy sector. In addition, we expect low interest rates to continue to spur growth in consumer lending, while an uptick in business confidence indicates commercial lending may begin to rebound as well, strengthening output from non-energy sectors. Trinidad & Tobago's nominal budget deficit will widen as a percentage of GDP in 2014, driven by elevated levels of government spending. We expect the deficit will begin to narrow in 2015, as stronger economic growth bolster revenue inflows. We expect the Trinidadian dollar to trade between TTD6.38-6.48/USD over the coming quarters, as moderate appreciatory pressures will counteract recent shortages of foreign exchange that prompted the exchange rate to depreciate in Q114. First, we expect stronger
export performance in the energy sector to increase US dollar inflows in the coming months.

T&T's current account balance will remain in surplus in the coming years, driven by improving export performance in the energy sector. Public investment abroad using sovereign wealth funds will likely keep the capital and financial account balance in deficit, though recent tax reform will also continue to encourage an uptick in private
foreign direct investment.

Major Forecast Changes

While full-year 2013 balance of payments data are not yet available, the Central Bank of Trinidad & Tobago (CBTT) estimates that the current account surplus stood at a robust 14.5% of GDP through Q313, wider than 4.1% of GDP in 2012. As such, we have revised up our 2013 estimate for the current account surplus from 7.6% of GDP to 10.7%. Our estimate factors in our view that natural gas exports fell towards the end of last year, owing to temporary maintenance projects at two key downstream plants.

Table Of Contents

Trinidad and Tobago Business Forecast Report Q3 2014
Executive Summary . 5
Core Views 5
Major Forecast Changes ..5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis .. 7
BMI Political Risk Ratings .. 7
Domestic Politics 8
Ruling Coalition Likely To Face Stiff Challenge In 2015 Elections 8
We believe that Trinidad and Tobago's ruling People's Partnership coalition will face a strong challenge from the opposition People's
National Movement (PNM) in general elections scheduled for May 2015, as a recent spike in violent crime and years of tepid economic
growth have weighed on public perceptions of the government's performance. That said, we will be monitoring the results of the PNM's
ongoing leadership contest for a clearer indication of the opposition's prospects in the general election.
Table: Political Overview 8
Chapter 2: Economic Outlook . 11
SWOT Analysis 11
BMI Economic Risk Ratings 11
Economic Activity 12
Improving Business Confidence To See Economic Recovery Gain Steam .12
We forecast real GDP growth in Trinidad and Tobago to accelerate to 2.6% in 2014 and 3.0% in 2015, up from the central bank's
preliminary figure of 1.6% growth in 2013, as recent tax reforms incentivise greater investment into the twin islands' key energy sector.
In addition, we expect low interest rates to continue to spur growth in consumer lending, while an uptick in business confidence indicates
commercial lending may begin to rebound as well, strengthening output from non-energy sectors.
Table: Economic Activity .12
Fiscal Policy . 14
Budget Deficit To Peak In 2014 .14
Trinidad and Tobago's nominal budget deficit will widen as a percentage of GDP in 2014, driven by elevated levels of government
spending. We expect the deficit will begin to narrow in 2015, as stronger economic growth bolster revenue inflows.
Table: Fiscal Policy ..14
Monetary Policy . 16
Rising Core Inflation To Prompt Rate Hikes By Year-End 16
A recent central bank survey indicates that business confidence in Trinidad and Tobago is relatively strong, bolstering our view that the
twin islands' economic recovery will continue to gain steam in the coming months. As such, given rising core inflationary pressures, we
forecast that the bank will begin a monetary tightening cycle in H214.
Table: Monetary Policy 16
Exchange Rate Policy . 18
TTD: Sideways Trading Through 2014 .18
Table: Exchange Rate .18
Table: CURRENCY FORECAST 18
Balance Of Payments . 19
External Position To Strengthen On Robust Export Performance .19
Trinidad and Tobago's current account balance will remain in surplus in the coming years, driven by improving export performance in the
energy sector. Public investment abroad using sovereign wealth funds will likely keep the capital and financial account balance in deficit,
though recent tax reform will also continue to encourage an uptick in private foreign direct investment.
Table: Current Account ..20
Chapter 3: 10-Year Forecast . 23
The Trinidad and Tobago Economy To 2023 . 23
Major Challenges Remain .23
Given a mixed outlook for the energy sector, we expect economic growth to expand at an annual rate of 3.4% over 2014-2023 -
significantly slower than the 7.6% rate achieved between 2000 and 2008. The non-energy sector should continue to grow, thanks to
government efforts to diversify the economy, although we doubt it will be enough to overcome a series of structural problems - most
notably, capacity constraints and labour shortages - that will constrain economic growth overall.
Table: Long-Term Macroeconomic Forecasts .23
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings .. 25
Business Environment Outlook 26
Institutions . 26
Table: BMI Business And Operation Risk Ratings 26
Table: BMI Legal Framework Rating 27
Infrastructure 28
Table: Labour Force Quality .28
Table: Trade And Investment Ratings ..29
Operational Risk . 30
Chapter 5: BMI Global Assumptions .. 31
Global Outlook . 31
Growth Increasingly Polarised ..31
Table: Global Assumptions ..31
Table: Developed States, Real GDP GrowtH, % 32
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % .. 32
Table: Emerging Markets, Real GDP Growth, % ..33

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