Central bank warns of further contraction of Trinidad economy
The Central Bank of Trinidad & Tobago (CBTT) says the effects of depressed oil prices and global growth uncertainties will continue to weigh on the twin-island's economy in 2016.
In its newly released economic bulletin, CBTT said real GDP is projected to contract by close to two per cent based on forecasts for declines in both the energy and non-energy sectors.
Annual inflation is forecast to settle around its 10-year average of six per cent given the impact of the widening of the value added tax base on food prices, while the unemployment rate is expected to rise marginally to 4.1 per cent.
"The energy sector continues to grapple with a low price environment and major maintenance and infrastructural upgrade activity which have curtailed gas supplies," the report stated.
"However, recent private and public sector initiatives should improve the supply of natural gas in the short to medium term. By the end of 2016, an additional 250 million cubic feet per day (mmcf/d) of natural gas is anticipated from EOG Resources from its Sercan field."
The CBTT said that bpTT is expected to add another 200-300 mmcf/d to natural gas output from its onshore compression project and a further 590 mmcf/d in 2018 from its Juniper field by the end of 2017.
Government initiatives to support the industry will be revealed in the new Natural Gas Master Plan, which is now before the Cabinet for review.
The CBTT noted that provisional data for January 2016 from the Ministry of Energy indicate that crude oil production declined by 13.9 per cent to 72,190 barrels per day in January 2016 from 83,883 bpd a year earlier. Natural gas production was 7.2 per cent lower at 3,819 mmcf/d in January 2016.
Meanwhile, activity in the non-energy sector, particularly in construction, manufacturing and distribution is expected to deteriorate.
Constrained by declining revenues particularly from the energy sector, the government has reduced its current and capital spending and has conducted a midyear evaluation of the budget for 2015-16 with a view to streamlining expenditure even further.
"The reduction of the fiscal stimulus to the economy and the current downbeat outlook of businesses and consumers could deepen the decline in domestic demand. In this environment, businesses are likely to exercise more caution in their investment decisions and towards production expansion," said CBTT.
It added however that government's announcement to partner with the private sector on home construction "should provide some fillip to the construction sector", once initiated.
CBTT said the domestic labour market conditions are expected to slacken amid declining economic activity.
"While no official statistics are yet available for the fourth quarter of 2015, early indicators such as retrenchment notices and job openings suggest worsening labour market conditions in select sectors directly affected by the energy downturn.
"Moreover, there have been increasing reports of lay-offs in recent months. Anecdotal evidence from newspaper reports and public notices suggests that between September 2015 and March 2016, twenty-nine companies announced job cuts which displaced close to 3,000 workers, but some industry specialists indicate that the figure could be as high as 5,000 persons," said the central bank.
It noted that the largest job cuts have occurred in the manufacturing sector where 1,124 workers were dismissed, with the steel giant ArcelorMittal accounting for 644 of these lost jobs amid a shutdown of its plant.
In the energy sector, BHP Billiton has announced that employee reductions could become necessary, while BP Plc has also indicated that it may have to cut jobs across its global operations.
"At the same time, there have been reports of labour shortages by local manufacturing companies and fast food retail chain outlets which present some opportunities for labour reallocation to take place," said CBTT, striking a note of optimism.
Last Friday, the Keith Rowley government announced a revised national budget, outlining a raft of new taxes as it moved to shore up declining revenue.
Finance Minister Colm Imbert told legislators in the first five months of the fiscal year, revenue collection was TT$2.96 billion lower than expected. However, on the positive side, government expenditure was TT$7.75 billion lower than budgeted.
Imbert also said the Rowley administration was phasing out the fuel subsidy, which has cost the government TT$31 billion over the last 10 years.