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Trinidad and Tobago Business Forecast Report Q4 2014

  • August 2014
  • -
  • Business Monitor International
  • -
  • 33 pages

Core Views
We maintain our forecast for real GDP growth in Trinidad & Tobago (T&T) to accelerate to 2.6% in 2014 and 3.0% in 2015, up from 1.6% growth in 2013. We expect recent tax reforms will incentivise greater investment into the twin islands’ key energy sector, while low interest rates will continue to spur growth in consumer lending, bolstering private consumption. Elevated public spending in advance of national elections in May 2015 will drive a widening of T&T’s budget deficit in 2014. Beginning in H215, stronger revenues on the back of accelerating real GDP growth will lead the shortfall to begin to narrow.

T&T’s current account balance will remain in surplus in the coming years, driven by improving export performance in the energy sector. Recent tax reform will also continue to encourage an uptick in private foreign direct investment.

Major Forecast Changes
We have revised our 2014 average exchange rate forecast to TTD6.373/USD, from TTD6.430/USD previously. The unit has strengthened in recent months, reversing its Q114 losses, likely bolstered by stronger goods exports as energy sector production has picked up. However, we believe that further appreciation will be limited, as energy prices will be tempered in the months ahead and the central bank will look to support export competitiveness.

Table Of Contents

Trinidad and Tobago Business Forecast Report Q4 2014
Executive Summary 5
Core Views...5
Major Forecast Changes.5
Key Risk To Outlook..5
Chapter 1: Political Outlook.. 7
SWOT Analysis 7
BMI Political Risk Ratings.. 7
Domestic Politics. 8
Crime Concern To Be Key Determinant Of 2015 Election..8
Trinidad and Tobago's next round of general elections in May 2015 will be narrowly contested, with the weakened popularity of Prime
Minister Kamla Persad-Bissessar providing an opportunity for the opposition People's National Movement to regain power following a
five-year absence. We expect the islands' deteriorating security environment to emerge as the crucial issue of the campaign.
TABLE: Political Over view 8
Chapter 2: Economic Outlook.. 11
SWOT Analysis... 11
BMI Economic Risk Ratings.. 11
Economic Activity... 12
Non-Energy Sectors To Bolster Growth....12
Strengthening household consumption in Trinidad and Tobago, combined with rising public investment on infrastructure projects ahead of
the May 2015 general elections, will support continued acceleration in non-energy sector activity in the coming quarters, bolstering real
GDP growth. Additionally, we expect a moderate uptick in natural gas production in the coming months to further strengthen the islands'
economic recovery.
tABLE: Economic Activity12
Fiscal Policy... 13
Stronger Revenues To Bolster Fiscal Position In 2015....13
Elevated public spending in advance of national elections in May 2015 will drive a widening of Trinidad and Tobago's budget deficit in
2014. Beginning in H215, stronger revenues on the back of accelerating real GDP growth will lead the shortfall to begin to narrow.
TABLE: Fiscal Policy14
Monetary Policy.. 15
Stronger Economic Growth Will Lead To Monetary Tightening15
Rising consumer price inflation amid stronger economic growth will see the Central Bank of Trinidad and Tobago begin a monetary
tightening cycle over the coming quarters. We forecast that 50 basis points of hikes will bring the benchmark policy rate to 3.25% by
end- 2014, with an additional 75bps of hikes by end-2015.
TABLE: Monetary Policy..15
Balance Of Payments... 16
Current Account Balance To Stay Firmly In The Black....16
Trinidad and Tobago's current account will remain in surplus in the coming years due to strong export performance by the energy sector.
That said, strengthening domestic demand will also lead to a rise in imports, preventing a substantial widening of the current account
surplus.
TABLE: Current Account.17
Exchange Rate Policy.. 18
TTD: Moderate Weakness Ahead18
Rising hydrocarbons exports will support the Trinidad and Tobago dollar in the coming months, but we anticipate moderate weakness in
Q414 and into 2015. Despite our view for a modest improvement in the country's external account position, we believe that the central
bank remains biased towards a weaker exchange rate.
TABLE: BMI Currency Forecast....18
TABLE: Exchange Rate.19
Chapter 3: 10-Year Forecast 21
The Trinidad and Tobago Economy To 2023.... 21
Major Challenges Remain..21
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...21
Chapter 4: Business Environment 23
SWOT Analysis... 23
BMI Business Environment Risk Ratings 23
Business Environment Outlook. 24
Institutions 24
Table: BMI Business And Operation Risk Ratings....24
Table : BMI Legal Framew ork Rating ...25
Infrastructure. 26
Table: Labour Force Quality .26
Market Orientation... 27
Table: Trade And Investment Ratings ....27
Operational Risk. 28
Chapter 5: BMI Global Assumptions. 31
Global Outlook.... 31
US Revision Drags Down Forecast.31
Table: Global Assumptions31
Table : Devel oped States , Real GDP Growt H, %..32
Table : BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 32
Table : Emerging Markets , Real GDP Growth , %.33

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