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Trinidad and Tobago Business Forecast Report Q1 2015

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

Core Views

R eal GDP growth in Trinidad & Tobago (T&T) will accelerate in 2015, driven by stronger activity in non-energy sectors of the economy and a modest increase in energy sector output. We forecast real GDP growth of 3.0% in 2015, up from our projection of 2.6% in 2014. Monetary policy in T&T will gradually tighten over the coming
quarters, as the central bank responds to rising inflation by hiking interest rates. The benchmark policy rate will rise by 25 basis points (bps) to 3.25% by end-2014, and by an additional 50bps to 3.75% by end-2015.
T &T will continue to run large current account surpluses in the coming years, as an uptick in oil and gas production helps to offset lower energy prices. Rising foreign investment and a strong reserves position will also reinforce the stability of the islands' external accounts, providing a buffer against a potential sharper drop in global oil prices.
S tronger real GDP growth will bolster Trinidadian government revenues in the coming years. This, combined with a pull-back in social spending, will lead to a narrowing of the budget deficit beginning in 2015.

Major Forecast Changes

Given Trinidadian policymakers' stated goal of diversifying the economy away from a reliance on energy exports, weakening the exchange rate offers a clear route to boosting the country's petrochemical and agricultural industries. As such, we have revised down our average exchange rate forecasts to TTD6.550/USD (from TTD/6.400/USD) and TTD6.650/USD (from TTD6.500/USD) for 2015 and 2016, respectively, compared with our projected average of TTD6.344/USD in 2014.

Table Of Contents

Trinidad and Tobago Business Forecast Report Q1 2015
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 Index 7
Domestic Politics 8
PNM Victory Would See Fuel Subsidy More Swiftly Phased Out 8
Trinidad and Tobago's May 2015 general election will be narrowly contested, with the opposition People's National Movement holding a
slight edge at present. The main implication of an opposition victory would be more substantial fiscal consolidation, including a swifter
phasing out of the government's costly fuel subsidy.
Table: POLITICAL OVERVIEW 8
Chapter 2: Economic Outlook 11
SWOT Analysis 11
BMI Economic Risk Index 11
Economic Activity 12
Government Policies To Support Stronger Growth 12
Economic growth in Trinidad and Tobago will strengthen in the coming quarters as expansionary fiscal and monetary policies by the
central government boost activity in non-energy sectors of the economy. Production levels in the energy sector will also see a modest
recovery from temporary setbacks in H114, bolstering headline growth.
Table: Economic Activity 12
Fiscal Policy 13
Deficit To Narrow Over Multi-Year Timeframe 13
Stronger real GDP growth will bolster Trinidadian government revenues in the coming years. This, combined with a pull-back in social
spending, will lead to a narrowing of the budget deficit beginning in 2015.
Table: Fiscal Policy 13
Monetary Policy 15
Monetary Tightening To Continue Through 2015 15
Monetary policy in Trinidad and Tobago will gradually tighten over the coming quarters, as the central bank responds to rising inflation by
hiking interest rates. The benchmark policy rate will rise by 25bps to 3.25% by end-2014, and by an additional 50bps to 3.75% by end-
Table: Monetary Policy 15
Exchange Rate Policy 16
TTD: Drop In Oil Prices To Increase Downward Pressures 16
The Trinidad and Tobago dollar will modestly depreciate over the coming quarters. This owes to lower prices for the country's oil and gas
exports, and the central bank's preference for a weaker exchange rate in order to boost the economic competitiveness of non-energy
industries.
Table: Exchange Rate 16
Table: CURRENCY FORECAST 17
Table: BMI Oil Price Forecasts 17
Balance Of Payments 18
External Account Stability Will Persist 18
Trinidad and Tobago will continue to run large current account surpluses in the coming years, as an uptick in oil and gas production helps
to offset lower energy prices. Rising foreign investment and a strong reserves position will also reinforce the stability of the islands'
external accounts, providing a buffer against a potential sharper drop in global oil prices.
Table: Current Account 18
Chapter 3: 10-Year Forecast 21
The Trinidad and Tobago Economy To 2023 21
Growth Will Have Limited Upside Over The Coming Decade 21
Trinidad and Tobago's economy will continue to improve over the coming decade, due to an uptick in energy production and modest
growth in the tourism and financial services sectors. However, structural weaknesses and external headwinds from lower energy prices
will cap real GDP growth below 3.5% through 2023.
Table: Long-Term Macroeconomic Forecasts 21
Chapter 4: Operational Risk 25
Operational Risk Index 25
Operational Risk 26
Labour Market Risk 26
Table: Caribbean - Operational Risk 26
Table: Caribbean - Labour Market Risk 26
Logistics Risk 27
Table: Caribbean - Logistics Risk 27
Trade And Investment Risk 28
table: Caribbean - Trade and Investment Risk 28
Crime And Security Risk 29
Table: Caribbean - Crime And Security Risk 30
Chapter 5: BMI Global Assumptions 31
Global Outlook 31
Reality Check: Uncertainty Reigns 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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