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Economist: Central Bank projection of 2.5% growth realistic

Thursday, January 2, 2014

The Central Bank’s economic growth projection of 2.5 per cent in 2014 is a realistic one, said Dr Roger Hosein, senior lecturer, Trade and Economic Unit, University of the West Indies (UWI), St Augustine. “The natural gas maintenance by the major companies has been completed. Our trading partners have been returning to something closer to a more stable level of growth, even if at a new lower normal. The price of oil is expected to average around US$95, although a few conservative estimates have gone as low as US$70,” Hosein told the Business Guardian last Friday. In December, the Central Bank released its Monetary Policy Report where Finance Minister Larry Howai announced a 1.5 per cent economic growth in 2013 and 2.5 per cent in 2014. The report states that the T&T economy grew by 1.2 per cent in 2012, following an annual average rate of decline of 2.3 per cent over the period 2009-2011. Revised estimates from the Central Bank indicate that real gross domestic product (GDP) increased on average by 2.3 per cent (year-on-year) in the first half of 2013. Economic activity in 2012 and in 2013 has been driven by the non-energy sector as production in the energy sector was affected by large-scale maintenance activities and other unplanned stoppages. During the third quarter of 2013, maintenance work was conducted by two major gas producers. 


Hosein believes there is a strong possibility for energy revenues to return to a “healthy state” in 2014. “My own take is that given the return to growth in major economies, such as the USA and the prospect that economy can return to full employment by next year, then oil prices, even amidst enhanced shale gas production would hover close to US$100 a barrel. This, alongside the decline in the slide of crude oil production in recent times, would see energy revenues remain healthy,” he said. Despite this, he said, the Petrotrin spill leaves a “question mark” and some uncertainty about its effects on the economy. He added, “If maintenance work is to be undertaken and dampens output level, this would adversely affect economic activity in the sector. “Also, what if the frequency of oil spills were to spread and continue to other areas? This would be disastrous and so the state has to do everything necessary to bring this to an immediate and conclusive end. If sabotage is involved as some commentators have said, then the perpetuators must feel the extreme end of the law as this can derail the entire growth projections for 2014 and paint a terrible picture to future investors.”


He said the floods that hit the Eastern Caribbean countries last week and the Petrotrin oil spill may have an effect on the Central Bank’s projected growth of 1.5 per cent economic growth for 2013. “As the first-ever T&T Extractive Industries Transparency Initiative Report (EITI) report recently showed, the second largest source of government revenues was Petrotrin—that is a big player—and the events associated with the recent oil spill of Petrotrin may cause this sector’s revival in the last quarter of the 2013 to be less than the modified forecast of 1.5 per cent stated by the Central Bank in its recent Monetary Policy Report. No doubt in the flood-hit OECS region, there may be a decline, although not extensive, of our export products,” he said.


Shale gas and the T&T market
Hosein referred to the rise of shale gas in the US and its impact on T&T. “Some commentators have said the unlocking of vast reserves of shale gas in the USA will not really affect the T&T economy as world demand for energy products has been growing. And, as for concerns about liquefied natural gas (LNG), for example, we were able to shift our exports from the USA to other more lucrative markets. But note this,  after 2009, the coupling relation between oil prices and gas prices that persisted for many years have been broken, and based on the data up to October 2013, the trends in these two variables have been going in opposite directions. This means that into the future, we may be seeing possibly lower market prices for our more buoyant natural gas intensive products,” he said.


Growth debatable
Richard Young, chairman of the Economic Development Board and former head of the Bankers’ Association of T&T (BATT), agrees with the Central Bank’s projection and believes there will be economic growth in 2014, although this growth is “debatable.” “We should see some growth in 2014. I understand all major maintenance in the energy sector has been done, so that sector should function, “There is certainly a lot of consumer spending as the citizenry continues to ensure T&T remains in the top quartile of The Happiest Country in 2013. In 2012, we were 31 out of 156 countries! Ironically, Singapore was 30th. Alas, if only we could be like Singapore!” The “challenge,” he said, would be effective execution of how the Government conducts its business.
“With the biggest ever national budget, we all anticipate government ramping up its spending. The challenge with all governments is to execute and implement. To me, this is where the hurdle is. Spend will certainly take place, but whether the country gets value for money will be left to be seen,” he said.


Young said diversification of the economy is important in maintaining economic growth. “If we can mobilise the country to truly diversify our economy, taking advantage of the low interest regime, we may see an increase in commercial lending, something that has been eluding us for the last few years. That would be one of my wishes for 2014,” he said. Young said the success of the economy not only depends on statistical data and the macro economy, but also on T&T developing a new culture that gives rise to sustainable growth. “On the more philosophical front, I wish the country can embrace better governance making integrity part of our DNA. We are truly lacking in this value at both private and public sectors. I also wish to see less controversy in the country. It looks like a regular feature of T&T as we experience it daily, and sometimes I get the feeling that we like it so! No need to mention crime as that should be on everybody’s list,” he said.


Summary of Central Bank report
In the 2013/2014 fiscal budget, government revenue is expected to amount to $55 billion, while expenditure is expected to increase to $61.4 billion, resulting in a deficit of $6.4 billion. Meanwhile, capital expenditure is budgeted at $8 billion, the highest budgeted level on record. It is expected that the Government’s capital expenditure programme, if implemented as planned, should provide some impetus to economic activity. Improving economic performances in advanced economies are expected to drive global growth in 2013 and 2014. The IMF notes that this represents a changing growth dynamic, as previously growth was driven by emerging markets. The IMF’s World Economic Outlook October 2013 indicates the global economy is expected to grow by 2.9 per cent in 2013 and 3.6 per cent in 2014.



Advanced economies are projected to grow by 1.2 per  cent and 2.0 per cent in 2013 and 2014, respectively, while emerging markets are forecasted to expand by 4.5 per cent in 2013 and 5.1 per cent in 2014. For T&T, the significant maintenance work in the energy sector has been completed; as such growth prospects over the short term are positive. Output in the upstream and downstream industries is expected to return to more normal levels in the closing months of 2013 and in 2014. In addition, drilling in the shallow water acreage in blocks, which were awarded in 2010, should commence in 2014. Further, the recent onshore bid round attracted 11 bids, representing the highest level of interest in approximately 30 years. It is expected that award of the blocks for the April 2013 bid round will be announced in January 2014, and this may lead to exploration activity in these blocks in late 2014 to early 2015.


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