Apr 2015 Financial News

Lower growth Eclac: Negative effect of falling oil prices

Apr 08, 2015

Recently released reports from two international agencies are forecasting major challenges for the energy dependent T&T economy in coming months.

The Economic Commission for Latin America and the Caribbean (Eclac) is projecting a decline in T&T’s economic growth forecast to 1.9 per cent this year.

In its annual Preliminary Overview of the Economies of Latin America and the Caribbean, Eclac said: “While gas prices remain above the level assumed, oil prices have fallen steadily since mid-year, from US$115 per barrel in June to below US$70 in November. 

“Even though the country produces much more gas than oil on an energy equivalency basis, so that its fortunes are more closely tied to the price of natural gas, the drop in the oil price could still have a negative impact on the government’s revenue and thus its ability to reduce the fiscal deficit.”

According to the United Nations agency, while the energy sector had shown some resurgence with estimated growth of one per cent last year, prospects for 2015 are “somewhat muted” due to the decline in global oil prices. 

“Besides the fall in oil prices, the Central Bank’s Energy Commodity Price Index, which is a weighted index that tracks price changes in the economy’s top ten energy-based commodity exports, has also declined over the year, though not as drastically as oil prices,” Eclac said.

It said for the 2015 fiscal year, the T&T Government is projecting a reduced fiscal deficit of 2.3 per cent of GDP. However, this is based on an average oil price of US$80 per barrel and a gas price of US$ 2.75 per MMbtu—the original projections in the 2014/15 national budget which have since been revised.

The non-energy sector was the main driver of economic growth, Eclac reported, expanding by approximately 2.5 per cent, with services expected to show the greatest strength with growth of 3 per cent. Manufacturing, T&T’s second-largest non-energy sub-sector, is expected to contract by 0.7 per cent, although this is an improvement on the contractions of 5.8 per cent and 1.8  per cent in 2012 and 2013, respectively. 

Eclac said while the energy sector showed some resurgence, driven mainly by the distribution, exploration and production, petrochemicals and service contractors sub-sectors, it may return to negligible growth if oil prices remain depressed.

“However, in 2015 the already steady non-energy sector should be bolstered by expansion in the construction sector; general elections are due next year, and an increase in government capital spending is expected,” the report stated.

Overall, Eclac has revised downward its economic growth projection for the region, forecasting a 1.0 per cent increase in regional GDP. This reflects a global environment characterised by less economic dynamism than what was expected at the end of 2014, the agency said.

The Eclac report comes on the heels of the 2015 macroeconomic report of the Inter-American Development Bank (IDB) released in South Korea late last week, which projected a decline in fiscal revenue of more than ten per cent for T&T and urged countries in Latin America and the Caribbean to make budget adjustments in the face of rising fiscal imbalances and higher financial risks.

Source:
Suzanne Sheppard
Trinidad Guardian
Wednesday April 8, 2015

http://www.guardian.co.tt/business/2015-04-08/lower-growth-eclac-negative-effect-falling-oil-prices