Raphael John-Lall

In a year when the economies of Eu­rope strug­gled and growth in the Unit­ed States was low­er than ex­pect­ed, the economies of T&T and the Caribbean re­gion al­so suf­fered.Cen­tral Bank Gov­er­nor Ewart Williams warned that the on­ly way the lo­cal econ­o­my could be analysed is by un­der­stand­ing what has tak­en place in­ter­na­tion­al­ly."Un­for­tu­nate­ly, one can­not un­der­stand the chal­lenges that we are fac­ing un­less one ap­pre­ci­ates the mo­men­tous changes that are cur­rent­ly tak­ing place in the in­ter­na­tion­al econ­o­my. It is no cliche that the glob­al econ­o­my is go­ing through a ma­jor trans­for­ma­tion and that economies, large and small, need to adapt."Williams was speak­ing last week Thurs­day at a lun­cheon host­ed by the T&T Cham­ber of In­dus­try and Com­merce in West­moor­ings, en­ti­tled, The Out­look for the T&T Econ­o­my 2012."Will­liams, in al­most dra­mat­ic fash­ion, stat­ed: "As we meet to­day, the eyes of the world are locked on Eu­rope, since the storm in the Eu­ro area is cast­ing a long shad­ow over the en­tire glob­al econ­o­my. Es­sen­tial­ly, we are wit­ness­ing years of fis­cal in­dis­ci­pline and its con­se­quences-the un­sus­tain­able build-up in sov­er­eign debt-are once again threat­en­ing to push the glob­al econ­o­my to the brink of the sec­ond ma­jor cri­sis in the space of five years."

Cri­sis in the Eu­ro­zone

Williams paint­ed a pic­ture of the Eu­ro­zone as an eco­nom­ic gi­ant stag­ger­ing from one cri­sis to an­oth­er.He stat­ed that Ire­land, Greece, Por­tu­gal and Italy, among oth­er Eu­ro­pean coun­tries, are fac­ing grave dif­fi­cul­ty in ser­vic­ing for­eign debt."The cri­sis has spread from debt mar­kets to the Eu­ro­pean banks, which are now fac­ing fund­ing short­falls sim­i­lar to those ex­pe­ri­enced in 2008, to Eu­ro­pean eq­ui­ty mar­kets, and it is threat­en­ing the vi­a­bil­i­ty of the eu­ro it­self."Williams quot­ed sta­tis­tics that showed that re­al gross do­mes­tic prod­uct in the Eu­ro­zone is pro­ject­ed to con­tract at an an­nu­alised rate of one per cent on the last quar­ter of 2011, and by a fur­ther 0.4 per cent in the first quar­ter of 2012."For 2012 as a whole, the Eu­ro­zone econ­o­my is pro­ject­ed to grow by at most 0.2 per cent and about one per cent in 2013."Un­em­ploy­ment, he said, now av­er­ages 10.2 per cent in the Eu­ro­zone, but has reached 22.6 per cent and 17.6 per cent in Spain and Greece, re­spec­tive­ly.To over­come some of these prob­lems, Williams point­ed out that Eu­ro­pean Union (EU) lead­ers are now ne­go­ti­at­ing new rules that would make fis­cal dis­ci­pline legal­ly bind­ing and move the cur­ren­cy block clos­er to a fis­cal union.

The Unit­ed States econ­o­my

Williams de­scribed the sit­u­a­tion in the US as be­ing on­ly "slight­ly bet­ter" than the Eu­ro­zone.The Or­gan­i­sa­tion for Eco­nom­ic Co-op­er­a­tion and De­vel­op­ment (OECD) has pro­ject­ed that the US econ­o­my will grow at two per cent next year."It in­sists, how­ev­er, that this tepid re­cov­ery will on­ly hold if pol­i­cy­mak­ers in Wash­ing­ton DC break their im­passe over the fed­er­al bud­get."He said that with­out ac­tion by the Amer­i­can Con­gress, OECD projects eco­nom­ic growth would bare­ly be mea­sur­able at 0.3 per cent next year and 1.3 per cent in 2013.

Bleak sta­tis­tics

Williams not­ed that these bleak sta­tis­tics have im­por­tant con­se­quences on T&T's eco­nom­ic per­for­mance."I have just paint­ed a pic­ture where our ma­jor ex­port mar­kets-coun­tries that ac­count for more than 65 per cent of our to­tal ex­ports-are fac­ing re­al cri­sis, per­haps sev­er­al years of anaemic growth and con­tin­ued high un­em­ploy­ment lev­els."He al­so raised the ques­tion of the health of the re­gion­al economies that ac­count for the rest of T&T's mar­kets."They are al­so fac­ing fis­cal and debt chal­lenges, while eco­nom­ic growth con­tin­ues to suf­fer from the im­pact of slug­gish tourism ac­tiv­i­ty, a sharp de­cline in work­ers' re­mit­tances and the slump in di­rect in­vest­ment flows."Al­ready in 2011, two Caribbean coun­tries have signed new arrange­ments with the In­ter­na­tion­al Mon­e­tary Fund (IMF) and three coun­tries-the Ba­hamas, Bar­ba­dos and Ja­maica-have been down­grad­ed by rat­ing agen­cies.He pro­ject­ed Caribbean re­gion growth to be a mod­est one of three per cent in 2012, with Guyana and Suri­name be­ing the on­ly two coun­tries show­ing ro­bust growth.

Re­mark­able re­silience

De­spite the poor per­for­mances of economies in­ter­na­tion­al­ly and re­gion­al­ly, Williams said T&T has shown "re­mark­able re­silience," thanks to en­er­gy re­sources and its much low­er pub­lic debt po­si­tion.He pro­ject­ed 1.5 per cent growth GDP in 2012.Williams point­ed out that af­ter strong growth in the pe­ri­od 2004-2008, re­al GDP de­clined by three per cent in 2009 and stag­nat­ed in 2010 and added that pro­jec­tions made by the Cen­tral Sta­tis­ti­cal Of­fice (CSO) point to a fur­ther GDP de­cline of 1.4 per cent in 2011.Al­so, the Cen­tral Bank da­ta shows that there was a de­cline in re­al GDP of about 0.9 per cent in the first half of 2011."If one tries to rec­on­cile these two sets of da­ta, one ar­rives at the con­clu­sion that there was a con­tin­ued de­cline in eco­nom­ic ac­tiv­i­ty in the sec­ond half of 2011. Anec­do­tal ev­i­dence con­firms this point­ing to re­duced hours and oth­er dis­lo­ca­tions as­so­ci­at­ed with the state of emer­gency and the cur­few which af­fect­ed, in the main, the dis­tri­b­u­tion, man­u­fac­tur­ing, and even en­er­gy sec­tors."

He gave sta­tis­tics that showed a de­cline in the en­er­gy sec­tor."The da­ta for the first half of the year con­firm a de­cline in crude oil and nat­ur­al gas pro­duc­tion of 7.8 and 1.4 per cent, re­spec­tive­ly, com­pared with the cor­re­spond­ing pe­ri­od of last year. Nat­ur­al gas pro­duc­tion has plateaued over the past few years, re­flect­ing a lack of new-based projects, as well as ca­pac­i­ty con­straints."In the non-en­er­gy sec­tor, Williams point­ed to ce­ment sales that have de­clined by 10.5 per cent in the first half of 2011 com­pared to Jan­u­ary to June 2010."Lat­est un­em­ploy­ment sta­tis­tics al­so show that the con­struc­tion sec­tor lost about 15, 500 jobs be­tween the third-quar­ter of 2009 and the cor­re­spond­ing pe­ri­od of 2010.

Glob­al econ­o­my un­cer­tain

Williams de­scribed as the glob­al econ­o­my in 2012 as be­ing "un­cer­tain.""In the case of the Eu­ro­zone, the con­sen­sus is that the scale of the im­bal­ances would im­ply a pro­longed pe­ri­od of sub­dued growth. In the US, po­lit­i­cal stale­mate, in the run-up to the pres­i­den­tial elec­tions, is like­ly to post­pone ef­fec­tive pol­i­cy ac­tion set­ting the stage for an­oth­er year of anaemic growth and high un­em­ploy­ment."He said the im­pli­ca­tions for T&T and re­gion­al economies will not be good."There will be no ma­jor im­prove­ment in eco­nom­ic ac­tiv­i­ty and, per­haps, the need for more aus­ter­i­ty mea­sures to ad­dress their high debt bur­dens."Williams said there must be mean­ing­ful di­ver­si­fi­ca­tion that pro­motes an ex­pan­sion in non-en­er­gy ex­ports mar­kets."Cur­rent­ly, the bulk of our ex­ports are di­rect­ed to the US, Unit­ed King­dom and the Eu­ro­zone. The con­ven­tion­al wis­dom is that over the medi­um-term, growth in these tra­di­tion­al mar­kets would con­tin­ue to lag be­hind the more dy­nam­ic emerg­ing mar­ket economies, like Chi­na, In­dia and Latin Amer­i­ca."The greater di­ver­si­fi­ca­tion of re­gion­al ex­ports of goods and ser­vices to­wards these new growth poles would make our non-en­er­gy sec­tor less vul­ner­a­ble to the kind of shocks ex­pe­ri­enced in the past few years," Williams said.