An­tho­ny Wil­son

In its An­nu­al Eco­nom­ic Sur­vey of 2011, the Cen­tral Bank con­cludes that the T&T econ­o­my record­ed its third suc­ces­sive an­nu­al con­trac­tion last year. Re­al Gross Do­mes­tic Prod­uct (GDP), ac­cord­ing to the Cen­tral Bank, is es­ti­mat­ed to have de­clined by 1.4 per cent in 2011 fol­low­ing de­clines of 0.02 per cent in 2010 and 3.3 per cent in 2009. Both the en­er­gy and the non-en­er­gy sec­tors were in de­cline in 2011. With re­gard to the en­er­gy sec­tor, the pro­duc­tion of crude oil fell by 6.9 per cent be­tween Jan­u­ary and No­vem­ber, com­pared with the same pe­ri­od in 2010, while the pro­duc­tion of nat­ur­al gas was low­er by 4.3 per cent in the same pe­ri­od.

"The de­cline in nat­ur­al gas pro­duc­tion was a sig­nif­i­cant fac­tor in re­duced pro­duc­tion of petro­chem­i­cals, along with rou­tine shut­downs of the Yara and Trin­gen 1 am­mo­nia plants dur­ing the year," ac­cord­ing to the Cen­tral Bank, adding: "Fer­til­iz­er pro­duc­tion for the first 11 months of 2011 was 8.8 per cent low­er than in the cor­re­spond­ing pe­ri­od of 2010."

In its an­nu­al re­port for 2011 pub­lished this week, Trin­gen es­ti­mat­ed that the ef­fect of the nat­ur­al gas cur­tail­ment last year re­sult­ed in a pro­duc­tion short­fall of 3 per cent, which it said was equiv­a­lent to about $35 mil­lion lost in its be­fore tax in­come. The pro­duc­tion of LNG fell by 7.7 per cent be­tween Jan­u­ary and No­vem­ber 2011, com­pared with the same pe­ri­od in 2010. In the same pe­ri­od, the pro­duc­tion of nat­ur­al gas liq­uids (such as cook­ing gas) con­tract­ed by 5.7 per cent as a re­sult of "lim­i­ta­tions in nat­ur­al gas avail­abil­i­ty." The de­cline in the pro­duc­tion of nat­ur­al gas liq­uids was the first time since 2007 that the in­dus­try's out­put fell. In the non-en­er­gy sec­tor, the Cen­tral Bank said: "On the do­mes­tic front, low­er than an­tic­i­pat­ed gov­ern­ment ex­pen­di­ture in the first half of the year, as well as the im­po­si­tion of a State of Emer­gency in the lat­ter part of 2011 al­so neg­a­tive­ly im­pact­ed sec­tors such as con­struc­tion, man­u­fac­tur­ing and dis­tri­b­u­tion."

It was pro­ject­ed that the con­struc­tion sec­tor would have de­clined by 7.9 per cent in 2011 and that the dis­tri­b­u­tion sec­tor would fall­en by 8.5 per cent "as a con­se­quence of the sub­dued eco­nom­ic land­scape as well as the pos­si­ble ef­fect of the State of Emer­gency and cur­few." On the oth­er hand, it was pro­ject­ed that the man­u­fac­tur­ing sec­tor grew by 1 per cent last year, while the fi­nance, in­sur­ance and re­al es­tate sec­tor in­creased by 4.3 per cent. The pro­jec­tion of na­tion­al de­cline of 1.4 per cent was based on the en­er­gy sec­tor reg­is­ter­ing close to ze­ro growth and the non-en­er­gy sec­tor de­clin­ing by 1 per cent and the Cen­tral Bank states that it is like­ly that the out­put of the en­er­gy sec­tor could be re­vised down­ward. Giv­en the fact that the en­er­gy sec­tor's share of GDP was 45.3 per cent in 2011, it is quite like­ly that a re­vi­sion down­ward in the en­er­gy sec­tor would re­sult in a re­duc­tion in the coun­try's to­tal out­put. Now, the tech­ni­cal de­f­i­n­i­tion of a re­ces­sion, used in most of the ma­jor economies, is con­sec­u­tive quar­ters of de­clin­ing out­put. It is that de­f­i­n­i­tion that led econ­o­mists in the Unit­ed King­dom and Spain, af­ter the re­cent re­lease of GDP da­ta there, to con­clude that those coun­tries had en­tered in­to re­ces­sions.

More gen­er­al­ly, a re­ces­sion refers to a pe­ri­od in which there is a slow­down in eco­nom­ic ac­tiv­i­ty in­di­cat­ed by a de­cline in GDP but al­so a rise in un­em­ploy­ment, a de­cline in in­vest­ment spend­ing, house­hold in­come and cor­po­rate prof­its.

Ac­cord­ing to the Eco­nom­ic Bul­letins for Jan­u­ary 2012 and Jan­u­ary 2011, in the 12 quar­ters be­tween the fourth quar­ter of 2008 and the third quar­ter of 2011 (which is the last quar­ter for which the Cen­tral Bank has pub­lished in­for­ma­tion), the T&T econ­o­my de­clined in eight of those pe­ri­ods. In fact, the four quar­ters in which the econ­o­my did not de­cline were the sec­ond quar­ter of 2011, the third and the first quar­ters of 2010 and the fourth quar­ter of 2009. In every oth­er quar­ter, the T&T econ­o­my de­clined. It might be cor­rect to say that the lo­cal econ­o­my has been dip­ping in and out of re­ces­sion since the third quar­ter of 2008 when Lehman Broth­ers went bank­rupt and AIG had to be bailed out by the US gov­ern­ment. An ac­cu­rate mea­sure­ment of whether or not the lo­cal econ­o­my is in de­cline is im­por­tant be­cause it dic­tates both the Gov­ern­ment's fis­cal poli­cies and the Cen­tral Bank's mon­e­tary poli­cies. Al­so im­por­tant is the sec­tors that are grow­ing or de­clin­ing.

In oth­er words, be­ing able to di­ag­nose if an econ­o­my is in re­ces­sion or not is im­por­tant be­cause the an­swer to that ques­tion dic­tates the eco­nom­ic pol­i­cy pre­scrip­tions of the Min­istry of Fi­nance and the Cen­tral Bank. If the di­ag­no­sis is that the coun­try is in re­ces­sion, the con­ven­tion­al Cen­tral Bank re­sponse would be to re­duce the cost of mon­ey by cut­ting the re­po rate. The Cen­tral Bank could al­so re­duce the re­serve re­quire­ment, which is the amount of mon­ey that fi­nan­cial in­sti­tu­tions are re­quired to lodge with the Cen­tral Bank. If the di­ag­no­sis is re­ces­sion, the Min­istry of Fi­nance could in­crease pub­lic spend­ing, in­crease sub­si­dies and trans­fers or re­duce tax­es. But if the econ­o­my is grow­ing, the Cen­tral Bank would keep the re­po rate steady un­til it sens­es that the econ­o­my is about to over­heat and then be­gin to hike the cost of bor­row­ing. If the econ­o­my is grow­ing, or just com­ing out of a re­ces­sion, the Min­istry of Fi­nance would have the lux­u­ry of be­ing able to curb ex­pen­di­ture as it knows that a grow­ing econ­o­my gen­er­ates more tax rev­enue as more peo­ple are em­ployed and more in­vest­ment goes in­to new projects.

The prob­lem with mak­ing an as­sess­ment of whether the T&T econ­o­my is in re­ces­sion or not is that the sta­tis­ti­cal au­thor­i­ties are not near­ly as ef­fi­cient in pro­vid­ing up-to-date GDP da­ta as in oth­er more de­vel­oped economies.

As stat­ed pre­vi­ous­ly, the last GDP sta­tis­tics that were made pub­lic were for the pe­ri­od Ju­ly 1 to Sep­tem­ber 30-which is more than sev­en months ago. Giv­en the ex­treme im­por­tance of the pub­lic get­ting an ac­cu­rate read of whether the econ­o­my is grow­ing or re­ced­ing, there is an ex­pec­ta­tion (or maybe an as­sump­tion) that GDP da­ta is pub­lished as soon as it is ready. One has to as­sume, there­fore, that the rea­son the Cen­tral Bank has not pub­lished GDP da­ta for the fourth quar­ter of 2011 or the first quar­ter of 2012 is be­cause that in­for­ma­tion has not been col­lat­ed and checked. If the GDP da­ta for the fourth quar­ter of 2011 and the first quar­ter of 2012 are not avail­able for the tech­ni­cians at the Min­istry of Fi­nance and the Cen­tral Bank, on what ba­sis are de­ci­sions be­ing tak­en about pub­lic ex­pen­di­ture, the lev­el of the re­po rate and the amount of liq­uid­i­ty in the fi­nan­cial sys­tem?

It could be that some judg­ments are be­ing made based on a mix­ture of ex­ist­ing da­ta and oth­er sig­nals that an econ­o­my sends out-such as "Help Want­ed" signs on stores, news­pa­per va­can­cy ads, the amount of ce­ment that is be­ing sold and the num­ber of new cars that are be­ing bought. But is that a sound enough ba­sis for an econ­o­my like this-giv­en the pos­si­bil­i­ty that a wrong di­ag­no­sis could lead to se­vere eco­nom­ic prob­lems?