Gabriel Faria, CEO, T&T Chamber of Industry and Commerce, says the latest economic data from the Central Bank shows that it cannot be "business as usual" in the country.
"The recent financial results of public companies show a mix of performance with most public companies posting declines in profitability ranging from as bad as 70 per cent on prior year, while another was down 30 per cent," he told the Business Guardian in a statement on Monday.
He added that stakeholders need to "interrogate" the statistics to understand fully what is happening in the different sectors of the economy.
"We need to interrogate the numbers more to understand the details by segment, but unless all stakeholders–government, labour, business and consumers–come together with a congruence of goals, we run the risk of seeing further declines. This is not the time to complain but to agree on shared solutions which we can implement," he said, adding that there will be no individual winners if the country fails.
"Businesses are already absorbing significant increases in costs and taxes to maintain consumer demand. This will mean lower dividends and this will impact on the institutions that are shareholders. We all have to take a long-term view on doing what is right for T&T," he said.
According to the Central Bank's Monetary Policy Report released last Friday, the gross domestic product (GDP) of the economy declined by 6.7 per cent in the first half of 2016, one of the steepest declines in decades.
Some of the data from the report show that headline inflation stood at three per cent in September 2016, the energy sector declined by 12.6 per cent in the second quarter of 2016, while the non-energy sector decreased by 5.4 per cent for the same period.
The Index of Retail Sales declined by 1.6 per cent in the second quarter of 2016 partly as a result of a sharp fall off within the construction materials and hardware subsector.
Central Bank Governor, Dr Alvin Hilaire, said T&T is in the early stages of an economic adjustment programme.
"Re-engineering would require a major long term effort. Everyone needs to be part of it. There needs to be a concerted effort to improve the revenue sources and to get away from the reliance on energy. The way of doing business and the efficiency of the economy needs to be shored up. As the government needs to roll back its activities, the private sector needs to take a greater role," he said.
Economic decline expected
Economist Dr Ronald Ramkissoon is not surprised by the sharp decline in the GDP for the first half of 2016.
"For those of us who have been following the prices and production of our major commodities there is no surprise. The non-energy sector is influenced by the energy sector. Government's expenditure has come down which it needed to do. It is how an open petroleum economy operates. This is why economists caution why we should behave in a particular way and why we should not over spend," he said.
He cautioned analysts who compare the 6.7 per cent decline of GDP in the first half of 2016 to the early 1980s where there was an 11 per cent decline of GDP in 1984 and high unemployment.
"The 6.7 per cent is a decline for six months and the eight per cent decline is for the second quarter. So we must be careful not to compare estimated data. The Central Bank also has its own way of calculating quarterly GDP as opposed to what the Central Statistical Office (CSO) would do at the end of the year. A decline in an economy is not something that you are happy about but it is the reality of T&T and reinforces the message that needs to be sent to the national community of the challenging times that we are in," he said.
According to information from the Central Bank, GDP is the total monetary value of final goods and services produced within a country in a particular time. It counts all the output produced within the borders of a country. GDP can be nominal or real. Nominal GDP includes effects of price changes on the value of output, while real GDP removes the effects of price changes so that the movement in output can be ascertained.
The CSO is also the official source of data in T&T and it is used by the Ministry of Finance.
The Central Bank's information also stated that notwithstanding the Central Bank's estimate for GDP for the first of 2016, using its own methodology, the CSO has estimated the decline for 2016 to be 2.3 percent which is the figure used by the Ministry of Finance in the Review of the Economy 2016.
The Central Bank also projected a 1.6 per cent GDP growth in 2017 and Dr Ramkissoon believes that this is highly possible.
"Do not forget that the IMF has a 2.7 per cent GDP growth in 2017. It is early days yet and we still have the next six month forecast for this year but in 2017, there is a reason why there will be some growth. It is going to be marginal. There will be certain projects coming on stream, phase three of BHP. There are some projects likely to bring output of gas and oil and that may make some change to energy output," he said.
He also said the country has to wait and see how much of the Government's capital expenditure will come on stream in 2017.
"That is going to be critical to 2017. We are in a very challenging period of economic adjustment and we want to make the necessary adjustments to our income. At the same time we must see what additional opportunities are out there for additional or new exports of goods and tourism," he said.
Worst in decades
University of the West Indies (UWI) senior lecturer, Dr Roger Hosein told the Business Guardian on Tuesday that the performance in the second quarter of 2016 was the worst in decades, using quarterly data for the time period 1991-2016.
"This points to a flaw in the simplistic policy strategy adopted to manage the T&T economy which is founded on producing more hydrocarbon products to allow the economy to grow. The turning point will be the Juniper project at the start of the third quarter of 2017 but this will not last very long and so the search for the real solutions to trigger long-run sustainable growth remains alive," he said.
He said the fall in energy production was largely responsible for the "sharp decline."
"In August 2016, natural gas production was 2,776 mmcf/d as compared to 3,876 in December, 2015. This is a sharp decline motivated by shutdowns by some of the production facilities by some multi-national companies in T&T. Apart from gas, oil production also fell from 86,000 barrels per day in October 2014 to 65,200 in August 2016, a decline of 24 per cent in a very short period of time," he said.
Likely to worsen in second half
Former Minister of Energy Kevin Ramnarine attributed the contraction of the economy mainly to a fall in oil and natural gas production and the fall in the prices of oil, natural gas, methanol and ammonia.
He said that as energy commodity prices fall so too will government revenue, in an emailed statement to the Business Guardian.
"This means less money is available to spend and reduced Government spending shrinks the non-energy sector. It is therefore no surprise that the Central Bank reported that the non-energy sector contracted by 4.3 per cent for the first six months of 2016.
"One of the main reasons for the 6.7 per cent decline is an 11 per cent fall in natural gas production and a 10 per cent decline in oil production. The Bank links a component of that decline to BP and BHP shutting down platforms to prepare them for the connection with the Juniper fields and with natural gas production from the Angostura Phase III project respectively.
"There is, however, another factor at play. That factor is the natural decline of mature reservoirs. The rate of decline of mature natural gas reservoirs off the East Cost has accelerated in 2015 and 2016. In the case of some mature natural gas reservoirs the decline rate is as much as 30 per cent per annum.
"With regard to planned shutdowns, from 2012 to 2015 the Ministry of Energy coordinated the planned shutdowns in the both upstream and downstream with careful attention to detail and timing. This minimised the impact these shutdowns had on the GDP while respecting the safety policy of the companies. It is not certain whether this level of coordination still takes place.
"While the Central Bank has reported on the first six months of 2016 there is already production and price data available on the third quarter of 2016. In the month of August there was a major series of planned shutdowns. From the data available, the second of half of 2016 will be more challenging for natural gas supply than the first half of 2016.
"The contraction observed by the Central Bank for the period January to June 2016 is therefore likely to continue or worsen in the second half of the year.
"There are some bright spots in 2017 as a result of new natural gas supply from four projects: BHP's Angostura Phase III, BP's Juniper, EOG's Sercan and BP's TROC project. These projects started in 2014 and will be put into production next year. They are the main reasons why the Central Bank has forecasted 1.6 per cent growth for 2017. It is likely however that this forecast could be revised downward given the rate at which mature natural gas reservoirs are declining.
"The economy will not see relief until the second half of 2017 when the BP Juniper project (the largest of the four) commences production.
"It should be carefully noted that Juniper and the other three projects will only alleviate part of the problem. They will not solve the problem of the natural gas shortfall.
"To compound the issue, the lack of clarity on both energy and fiscal policy and the length of time taken to make decisions have only served to exacerbate the levels of uncertainty among our largest investors."