Given tepid global growth, ongoing maintenance projects in Trinidad & Tobago (T&T)'s energy sector and a weak non-energy sector, we maintain our view that real GDP growth will remain slow in T&T in the coming years. As such, we forecast average growth of 3.1% between 2012 and 2017.
Despite relatively elevated energy prices, we expect T&T's fiscal accounts to post modest deficits over the medium term due a continued rise in recurrent expenditures.
Moreover, while we expect energy exports to ensure T&T's current account remains in surplus over the coming years, we continue to highlight that a greater diversification of exports and export markets is necessary to ensuring a robust balance of payments position over the long term.
Major Forecast Changes
We have revised down our 2012 real GDP growth forecast for T&T to 1.0% from 1.5%, as we believe continued weak energy sector output and little upside for the non-energy sector means that economic activity will be slower than we previously anticipated. That said, we anticipate a modest acceleration in real GDP growth to 2.5% in 2013 as energy output begins to come back online.
Following backdated changes to our balance of payments data, as well as the downgrade of our real GDP growth forecast, we have seen upgrades to our current account forecasts for the country.
Indeed, we now forecast T&T's current account surplus to come in at a robust to 17.7% of GDP in 2012 and 17.4% in 2013.
Table of Contents
Executive Summary
Core Views
Major Forecast Changes
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Less Political Infighting, But No Major Progress
In the coming quarters, we expect a reduction in infighting within Trinidad & Tobago's ruling coalition, after the junior partner elected a
new leader who has called for stronger relations between the two main parties In addition, while we expect the government to continue
its focus on security, this is unlikely to translate into a substantial improvement given the country's limited fiscal firepower
TABLE: POLITICAL OVERVIEW
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Industrial Sector Weakness Prompts Growth Downgrade
Despite a pick-up in domestic demand in Trinidad & Tobago, we have downgraded our 2012 real GDP growth forecast to 1 0%, as we
believe poor industrial sector performance is likely to continue weighing on economic activity over the coming quarters Moreover, we
maintain our view for only a modest pick-up in real GDP growth in 2013 to 2 5%
TABLE: ECONOMIC ACTIVITY
Monetary Policy
Historically Low Rates Are Here To Stay
We maintain our end-2012 interest rate forecast of 2 75% for T&T, implying that rates will remain on hold for the duration of the year,
following the central bank's 25 basis points cut in September Moreover, in coming quarters, we believe the monetary authorities will
be keen to keep rates low in order to bolster the economy's recovery, such that we expect the central bank to keep the benchmark rate
steady at 2 75% through end-2013
TABLE: MONETARY POLICY
Balance Of Payments
Current Account Surplus Intact Despite Moderating Energy Exports
Relatively favourable trade dynamics due to our expectation for rising productive capacity to bolster energy exports over the coming
quarters will ensure T&T's current account remains in surplus over the coming years Moreover, we see potential for rising oil reserves
and what appears to have been a successful licensing round to bolster financial inflows, translating into a more moderate financial
account shortfall
TABLE: CURRENT ACCOUNT
Fiscal Policy
Fiscal Accounts Headed Into Deficit
Weaker-than-expected revenue and expenditure growth in T&T has caused us to revise down our 2012 forecasts for both That said, we
maintain our view that the country's fiscal accounts are headed into the red over the coming quarters, forecasting nominal fiscal deficits
of 0 2% of GDP in 2012 and 0 8% in 2013
TABLE: FISCAL POLICY
Exchange Rate Policy
TTD: Range Trading To Continue
We expect the Trinidad & Tobago dollar (TTD) to continue trading within a tight range of TTD6 3200/US$ to TTD6 4200/US$ over the
coming months, as we believe the monetary authorities will be keen to maintain a stable exchange rate in the face of a weak growth
outlook
TABLE: EXCHANGE RATE
Regional: Sovereign Risk Ratings
Global Headwinds Further Erode Creditworthiness
Even after a wave of downgrades to our sovereign risk ratings for Latin America in our previous (August) update, further macroeconomic
forecast revisions have seen us undertake another round of downgrades This comes as more negative economic data suggests that
macroeconomic headwinds have become more intense than we had previously assumed Most notably, however, our latest revisions to
the 'willingness to pay' component of our rating has seen Argentina slip to the bottom of our Latin America ratings table, suggesting that
default risks are likely to become increasingly priced into debt instruments
TABLE: LATIN AMERICA SOVEREIGN RISK RATINGS – EVOLUTION OF ABILITY TO PAY
TABLE: LATIN AMERICA SOVEREIGN RISK RATINGS – EVOLUTION OF WILLINGNESS TO PAY
Chapter 3: 10-Year Forecast
The T&T Economy To 2021
Major Challenges Remain
We have become increasingly pessimistic towards Trinidad & Tobago's long-term growth trajectory, although we believe the economy
will remain the Caribbean standard bearer over the next decade With the energy sector dwindling, we expect economic growth to slow
to an annual growth rate of 3 3% over 2012-2022 – significantly slower than the 7 6% rate achieved between 2000 and 2008 The nonenergy
sector should continue to expand, thanks to government efforts to diversify the economy, although we doubt it will be enough to
overcome a series of structural problems – most notably, capacity constraints and labour shortages
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
Market Orientation
TABLE: LATIN AMERICA, ANNUAL FDI INFLOWS
Operational Risk
Chapter 5: BMI Global Assumptions
Global Outlook
Mixed Signals For The New Year
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 35
