Trinidad and Tobago's economy is expected to resume growth of 1.2 per cent in 2012, following a 2.6 per cent decline in 2011. Fostering this recovery is a return to growth in the non-petroleum sector, projected at 1.9 per cent, driven by projected growth of 2.4 per cent in the services sector. The petroleum industry, however, is expected to register a decline for a second year, of 1.0 per cent. During the first quarter of fiscal 2012, the rate of unemployment declined to 4.2 per cent from 5.2 per cent in the fourth quarter of fiscal 2011. This amounted to a decrease in the number of persons unemployed, over the period, from 31,500 to 25,900. Headline inflation gained momentum during the first seven months of 2012, climbing to 10.8 per cent in July (year-on-year), driven mainly by food inflation. Prices in Food and Non-Alcoholic Beverages accelerated from 14.0 per cent in January, to 22.6 per cent in July 2012. Core inflation increased marginally over the seven month period, from 1.8 per cent year-on-year in January to 2.8 per cent in July, reflecting higher prices for Transport and Recreation and Culture.
Amidst sluggish economic activity and evidence of relatively stable core inflation, the Central Bank continued its accommodative monetary policy stance. In that context, private sector credit granted by the consolidated financial system maintained a slow recovery throughout the period October 2011 to June 2012, inching up by 2.8 per cent in May 2012, on a year-on-year basis, compared with 1.4 per cent in October 2011. Credit continued to be boosted by commercial bank lending which was up by 5.7 per cent in May 2012 compared with 4.5 per cent in October 2011. The growth rate of business lending picked up somewhat, reaching 4.6 per cent (year-on-year) in May 2012 while real estate lending remained strong, expanding by 9.8 per cent in May 2012. Narrow money (M-1A), defined as currency in active circulation plus demand deposits grew by 15.3 per cent over the period May 2011 to May 2012 (year-on-year). M-2, which comprises M-1A plus time and savings deposits, grew by 12.2 per cent over the period May 2011 to May 2012 (year-on-year).
The Central Bank's repurchase (repo) rate remained at 3.0 per cent, the same rate at which it was instituted back in July 2011. Regarding commercial banks, a significant build-up in liquidity in the financial system over the six-month period October 2011 to March 2012 added some downward pressure on their interest rates. The banks' weighted average lending rate fell from 9.19 per cent and 9.16 per cent in the first and second quarters of fiscal 2012 respectively to close at 9.04 per cent at the end of March 2012. Similarly, the weighted average deposit rate fell from 0.65 per cent in September 2011 to 0.61 per cent in December 2011 and to 0.59 per cent in March 2012. The weighted average buying rate of the Trinidad and Tobago dollar depreciated slightly to TT$6.4057=US$1 at the end of June 2012 from TT$6.3659=US$1 in October 2011. Similarly, the weighted average selling rate depreciated to TT$6.4385=US$1 from TT$6.4223=US$1 over the same period.
The review of the performance of central government operations in 2012 reveals that the overall deficit is estimated at $6,6675.8 million or 4.3 per cent of GDP, emanating from Total Revenue and Grants of $47,672.8 million and Total Expenditure and Net-Lending of $54,348.6 million. Total Revenue is projected to increase by $172.2 million over last year's outturn of $47,500.6 million and Total Expenditure, inclusive of Net Lending, is estimated to increase by $2,856.2 million over that of last year.
Public Sector Debt stock is anticipated to increase by 32.2. per cent from $54,098.4 in fiscal 2011 to $71,506.7 million by the end of the current fiscal year. As a percentage of GDP, Gross Public Sector Debt is also expected to increase from 36 per cent in fiscal 2011 to 46.6 per cent in fiscal 2012. The projected increase in Public Sector Debt is largely attributable to a 59.1 per cent increase in Central Government Debt to $46,055.9 million largely to facilitate pay out to CLICO policy holders. By the end of August, 2012, the Net Asset Value of the Heritage and Stabilisation Fund was US$4,547.5 (TT$29,320.2 million), which represents 19.1 per cent of GDP, appreciating from US$4,084.0 million recorded on September 30, 2011. Continued positive performance in the current account and a narrowing of the deficit in the capital account contributed to a considerable improvement in the Balance of Payments for 2011, over the previous year. The surplus in the Balance of Payments account for 2011 was US$752.6 million, significantly larger than the US$418.4 million recorded for 2010. Increasing energy and non-energy imports was a significant factor in trimming the current account surplus from $4,172.3 million in 2010 to $2,258.5 in 2011.
In contrast, while the capital account remained in deficit, net inflows of foreign direct investment of US$1.1 billion, up from US$549.4 million in 2010, was a major factor in narrowing this deficit. The Balance of Visible Trade over the period October 2011 to June 2012, suffered a 22.9 per cent decline from October 2010 to June 2011, reflecting sharper decrease in exports of 13.7 per cent than the 7.4 per cent decrease in imports. During the first half of the fiscal year 2012, Trinidad and Tobago's balance of trade with CARICOM countries worsened by 29.8 per cent, from $9,253.5 million for the period October 2010 to June 2011to $6,493.8 million in the period October 2011 to June 2012. The decline in the trade balance was due to 23.4 per cent reduction in exports of which exports exclusive of petroleum, plummeted by 70.7 per cent. In 2011, Gross Official Reserves (GOR) was US$9,822.7 million, equivalent to approximately 13.5 months of prospective imports of goods and non-factor services. By June 2012, reserves dipped to US$9,734.8 million, equivalent to approximately 12 months of import cover.