Apr 2015 Financial News

RBC economist: TT economy maybe shrunk

Apr 24, 2015

RBC economist, Marla Dukharan, calculated a weaker performance of the TT economy in this fiscal year that the forecasts of both the International Monetary Fund (IMF) and Standard and Poor’s (S&P), she told the “Second Annual Pre-Budget Forum” last Wednesday night.

The event at the University of the West Indies (UWI), St Augustine, was held by the UWI Alumni Association, the Professional Centre and UWI.

Dukharan said the S&P is predicting 2.0 percent growth, and the IMF predicting 1.5 percent growth this year.

Noting that last year’s growth was just 0.7 percent when the global oil-price was US$90 per barrel (compared to a current figure of about US$55), Dukharan predicted this year’s growth would be much less than the forecasts of the IMF and S&P, and indeed could likely be zero or even negative growth (that is, a shrinkage of the economy).

Overall from 2009 to present the TT economy has slightly shrunk by a negative growth of 0.3 percent.

Dukharan said that despite some improvements in the supply of data by the Central Statistical Office (CSO), S&P has bemoaned that there are still shortages in the CSO’s economic data.

She said some analysts think the CSO data underestimates the country’s economic growth, especially in the non-energy sector. She singled out some alternative indicators of economic performance. She said some 18,000 cars are imported annually, cement sales are healthy and there is much more growth in other regions outside of Port-of-Spain. Dukharan said the RBC is predicting a global rise in the Brent crude oil-price from US$60 this year to US$70 next year to a long-term value of US$90.

The corresponding price of WTI oil (near which price TT oil is sold) to be roughly six dollars lower than Brent in each case. Likewise, the price of natural gas on the US market — the Henry Hub price — should go from US$2.90 per mmBTU this year to US$3.45 next year to $4.50 in the long-term, she said citing the RBC forecasts.

The TT energy sector provides 43 percent of TT’s GDP and 35 percent of fiscal revenues (worth $20 billion), she said, and further was the platform supporting the non-energy sector.

Dukharan said while he intended fiscal deficit to be 2.3 percent of GDP for this fiscal year, if State expenditure and world oil/gas prices stay as they are, the deficit will in fact now likely be 6.7 percent of GDP, or $11.7 billion. By contrast, the deficit for fiscal 2009 was just $206 million, she noted.

Contrasting a growing deficit (since 2009 to present) to the 0.3 percent economic shrinkage over that period, Dukharan declared that (increased/excessive) governmental spending has not led to an increase in economic growth.

“My prediction is that the economy could contract this year, based on lower revenues from the oil and gas sector.”

In the question session, UWI economics lecturer, Dr Daren Conrad, bemoaned that TT is still to reliant on its energy sector (for revue) and has too many transfers and subsidies (for expenditure). Efforts at economic diversification have been stymied by complacency, he said, and persons need to be weaned off of State subsidies. “The average household gets $5,000 worth of subsidies, at a cost to the Government,” hit Conrad. “18,000 cars are imported and we drive from here to there because gasoline is cheap.”

Admitting that other nations whose governments had tried to cut their fuel subsidies had reacted by public rioting, he nonetheless urged that such a reduction be introduced gradually, along with encouraging a change in the citizenry’s mind- set.

Suggesting that low-wages could lead workers to be frustrated and be vulnerable to the lure of committing crime, Conrad urged that a solution is to make a marginal increase in people’s quality of life such that their marginal benefit of going into crime will decrease, especially if the State can increase the probability of offenders being caught and punished.

Source:
By SEAN DOUGLAS
Newsday
Friday April 24, 2015

http://www.newsday.co.tt/business/0,210192.html