Report Published: "Trinidad & Tobago Business Forecast Report Q3 2013"

From: Fast Market Research, Inc.
Published: Thu Jul 04 2013

Due to weakening US demand for oil and gas imports, our expectation of a modest recovery in the energy sector, and a still-developing non-energy sector, we forecast Trinidad & Tobago (T&T)'s economy will post an average expansion of 3.4% between 2013 and 2017.

That said, this implies that the we expect the economic recovery to continue strengthening over the coming quarters following an average contraction of 2.0% between 2009 and 2011.

We expect T&T's fiscal accounts to post modest deficits over the medium term, following nearly a decade of fiscal surpluses, due a continued rise in recurrent expenditures, as well as modest declines in energy production. However, we forecast the fiscal deficit will peak in 2015, with expenditures moderating following elections that year.

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That said, we expect that energy exports will continue to keep T&T's current account in surplus over the coming years. However, declining production and little upside for natural gas prices mean that we expect the current account surplus to remain off its highs over the coming years. As such, the continued development of T&T's nonenergy sector will be essential to boosting the twin islands' long-term growth trajectory.

Major Forecast Changes

We continue to expect a recovery of 2.5% real GDP growth in 2013, up from 1.2% in 2012. However, we are revising down our real GDP forecasts for 2014 and 2015 to 3.0% and 3.5%, respectively, from 3.5% and 3.9%, as a mixed outlook for T&T's energy sector will prevent the country from seeing rapid economic growth over the coming years.

We have revised down our 2013 current account forecast to a surplus of 10.7% of GDP, from 12.2%, on account of our Oil & Gas team's assessment that the US - formerly a major importer of natural gas from T&T - will see its demand for external energy resources sharply diminish in the near term. That said, we continue to believe T&T will run current account surpluses in the years ahead, as energy output begins to come back online following maintenance delays in 2012. We have adjusted our currency forecasts for 2013 to reflect a slightly stronger exchange rate. Indeed, we forecast the Trinidad & Tobago dollar to average TTD6.3700/US$ this year, implying modest appreciation from an average of TTD6.3800/US$ in 2012, as an increase in exports and foreign direct investment this year will see a moderate rise in currency inflows.

Key Risks To Outlook

Should energy sector maintenance projects continue to drag down production over the coming months, we could see real GDP growth come in below our forecast of 2.5% for 2013. Such a scenario would also pose downside risks to our forecast for interest rates to remain on hold at 2.75% through end-2013.

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