?Cen­tral Bank Gov­er­nor, Ewart Williams, is pre­dict­ing that the lo­cal econ­o­my will grow at two per cent in 2010, with pri­vate sec­tor de­mand be­gin­ning to pick up in the sec­ond quar­ter. Speak­ing in an ex­clu­sive in­ter­view, Williams said with the re­sump­tion of growth in the econ­o­my he ex­pect­ed that there would be an in­crease in in­fla­tion from its cur­rent lev­el of 1.5 per cent to four or five per cent. "Be­cause pri­vate sec­tor de­mand has been so slug­gish, we are fair­ly con­fi­dent that, oth­er things be­ing equal, it would re­bound this year. But it might not re­bound in the first quar­ter. It might take some time. There­fore, in the ini­tial stage of the re­cov­ery, Gov­ern­ment stim­u­lus will con­tin­ue to be im­por­tant as the Gov­ern­ment has an­nounced ex­pen­di­ture for roads and hous­ing etc." He said there re­mained some un­cer­tain­ty as to when the pri­vate sec­tor "would come in to do its part" not­ing that the Cen­tral Bank was try­ing to do its part by low­er­ing in­ter­est rates.

"At some stage, we are hop­ing that the re­cov­ery abroad would in­flu­ence the lo­cal psy­chol­o­gy–that peo­ple would see that this re­ces­sion thing is fin­ished," said Williams. If this hap­pens, Williams said in­vestors would start re­build­ing their in­ven­to­ries and con­sumers would re­sume bor­row­ing and con­sump­tion. "You would need the as­sis­tance of the pri­vate sec­tor. The Gov­ern­ment alone can­not do it and you don't want the Gov­ern­ment alone to do it, for ob­vi­ous rea­sons. We would, there­fore, to see some pick up in pri­vate sec­tor de­mand in the sec­ond quar­ter of this year, en­cour­aged by low­er in­ter­est rates and by the psy­chol­o­gy of the re­cov­ery abroad," said Williams. The re­cov­ery de­pends on sev­er­al fac­tors, ac­cord­ing to the Gov­er­nor, in­clud­ing the re­spon­si­bil­i­ty of the coun­try's trade unions and the re­cov­ery of re­gion­al economies.

Unions show re­spon­si­bil­i­ty

On the is­sue of the trade unions, the Gov­er­nor said what hap­pens in in­dus­tri­al re­la­tions in terms of de­mands for wage in­creas­es will be im­por­tant in the re­cov­ery. "The unions have shown tremen­dous re­spon­si­bil­i­ty and I am sure they would be called up­on to con­tin­ue. In a way, there is go­ing to be an ex­plic­it choice of em­ploy­ment ver­sus wage in­creas­es. Let's take the pub­lic sec­tor. The pub­lic sec­tor has not had its ne­go­ti­a­tions. But I'm sure that it could be­come an is­sue in 2010. No­body has men­tioned it yet and the Gov­er­nor is not the per­son to men­tion it, but I think in­dus­tri­al re­la­tions is go­ing to play some part in the na­ture and strength of the econ­o­my." The re­cov­ery of the lo­cal econ­o­my would al­so be helped if there were a re­cov­ery in Cari­com, which is a ma­jor mar­ket for T&T's man­u­fac­tur­ing ex­ports. But if Cari­com re­mains in re­ces­sion, that could com­pli­cate the re­cov­ery, said the Gov­er­nor.

Williams de­scribed 2009 as be­ing a "dif­fi­cult, chal­leng­ing year" but said it "could have been much, much worse." Williams said he ex­pect­ed the coun­try's GDP to de­cline by about three per cent in 2009, which he said was larg­er than the Cen­tral Bank had first in­di­cat­ed. "When we pub­lished the Mon­e­tary Pol­i­cy Re­port in No­vem­ber, we were pro­ject­ing the de­cline in GDP to be about two per cent last year. I would not be sur­prised if it is more than that; some­thing like three per cent," said Williams, not­ing that the econ­o­my could have de­clined by be­tween four and five per cent in the third quar­ter. Point­ing to the da­ta that sup­ports his the­sis that the econ­o­my may have de­clined by three per cent last year, Williams not­ed the in­crease in un­em­ploy­ment from 5.1 per cent to 5.8 per cent in the third quar­ter of 2009, the de­crease in re­tail sales and the de­cline in ab­solute terms of bank cred­it.

"All the bits and pieces of in­for­ma­tion seem to con­firm the de­cline in the third quar­ter–a de­cline of around four per cent, quar­ter-on-quar­ter. So we would have had four con­sec­u­tive quar­ters of de­cline," laugh­ing as he re­mem­bered the con­tro­ver­sy sur­round­ing his re­fusal to use the term re­ces­sion to de­scribe the econ­o­my when he re­port­ed two quar­ters of de­cline. Re­flect­ing on the Cen­tral Bank's re­port that the rate of in­fla­tion de­clined to 1.5 per cent in No­vem­ber, Williams said that that could be seen in two ways: con­firm­ing that pri­vate de­mand is "re­al­ly, re­al­ly down" and as such in­fla­tion is a con­se­quent of the sharp fall in de­mand, or al­ter­na­tive­ly and pos­i­tive­ly, that T&T was suc­cess­ful in break­ing the back of in­fla­tion and in­fla­tion­ary ex­pec­ta­tions.

Sig­nif­i­cant cap­i­tal out­flow

Williams said non-oil ex­ports for the first nine months of 2009 de­clined by al­most 50 per cent and to­tal im­ports re­duced by close to 40 per cent in com­par­i­son to the cor­re­spond­ing pe­ri­od last year. Williams ad­mits there had been "sig­nif­i­cant cap­i­tal out­flows" from the coun­try in 2009 caused by a lack of con­fi­dence and the de­cline in the dif­fer­en­tial be­tween lo­cal and US in­ter­est rates. As well, Williams said, there is anec­do­tal ev­i­dence of peo­ple tak­ing mon­ey out to buy prop­er­ty in the US, there had been in­creased sales to the pub­lic sec­tor which is gear­ing up for in­fra­struc­tur­al ex­pen­di­ture and there would have been some for­eign ex­change im­pact as a re­sult of T&T's host­ing the two in­ter­na­tion­al sum­mits last year. "The fig­ures would show that we lost US$700 mil­lion in re­serves. But we re­al­ly lost US$1.1 bil­lion be­cause the US$700 mil­lion in­cludes the US$400 mil­lion equiv­a­lent in the in­crease in Spe­cial Draw­ing Rights from the In­ter­na­tion­al Mon­e­tary Fund," Williams said.

The Gov­er­nor said he did not see the coun­try's de­ple­tion of its for­eign re­serves as be­ing T&T's most press­ing eco­nom­ic prob­lem be­cause "I be­lieve you build up re­serves in good times in or­der to run down re­serves in bad times. That as­sumes that the bad times are not per­ma­nent and that the bad times come from the busi­ness cy­cle rather than from struc­tur­al de­fects in the econ­o­my." As a re­sult of the medi­um-term pro­jec­tions for oil and nat­ur­al gas prices on the in­ter­na­tion­al mar­ket, Williams said, "Clear­ly we are go­ing to have to re­duce our ap­petite for im­ports. At some stage we are go­ing to have to take steps to re­duce do­mes­tic de­mand." Ques­tioned on whether do­mes­tic de­mand had not been re­duced as ev­i­denced by the sharp de­cline in im­ports, Williams said T&T will need to es­tab­lish a new equi­lib­ri­um.

"We are go­ing to have to go back to a sit­u­a­tion where ex­port growth re­sumes but im­ports and cap­i­tal out­flows would not be at the lev­els we saw in 2006 and 2007." Ex­plain­ing the need for the new equi­lib­ri­um, the gov­er­nor said this would re­quire the resur­gence of non-oil ex­ports even as there is some agree­ment on the bal­ance be­tween pub­lic and pri­vate sec­tor ex­pen­di­ture and in­vest­ment. Sum­ming up 2009, Williams said that "while it was not the best of years," the econ­o­my had shown "fair­ly re­silience" which was tes­ti­mo­ny to the fact that "for­eign ex­change cush­ion we had served us in good stead." He said the for­eign ex­change cush­ion re­sult­ed be­cause "notwith­stand­ing all the in­creased ex­pen­di­ture we had over the last few years, we col­lect­ed so much mon­ey that we were able to build our for­eign re­serves."