Trinidad & Tobago (T&T)'s economy will see weak economic activity growth in the coming years, as structurally lower oil prices weigh on consumption, investment and net exports. Low oil prices will weigh on the hydrocarbon sector's production outlook, while non-oil industries will struggle to become competitive.
The government will post consistent fiscal deficits, as low oil prices weigh on revenue collection. Expenditure cuts will be limited, as the government seeks to support economic activity.
Lower oil prices will place depreciatory pressure on the Trinidadian dollar (TTD) over the coming quarters, resulting in a deterioration of the country's terms of trade and weaker investment inflows. Tight control over foreign exchange sales by the central bank will prevent a significant depreciation of the currency, although the bank will allow the unit to gradually depreciate.
Major Forecast Changes:
We have downwardly revised our real GDP forecast in 2016 from a 0.5% contraction to a 1.1% contraction in light of rising unemployment and falling hydrocarbons production.
We have downwardly revised our current account forecast from a 1.0% of GDP surplus to a 2.1% deficit in 2016 due to the continued weakness of hydrocarbons exports. We forecast deficits to persist in the coming years.
We have upwardly revised our fiscal deficit forecast to 4.4% of GDP, from 7.6%, in 2016 as the government's difficulties in securing adequate financing have led to a sharper-than-expected contraction of expenditures.
The primary risks lie to the downside. Should oil prices fail to sustain a recovery in H216, the recession in T&T could be more severe than currently anticipated. In such a scenario, the CBTT could allow the Trinidadian dollar to depreciate more quickly than forecast, precipitating rising inflation, falling imports and a risk of capital flight.
|e/f=BMI estimate/forecast; Source: National Sources/BMI|
|Real GDP growth, % y-o-y||1.9||-2.1||-1.1||3.1|
|Nominal GDP, USDbn||28.2||27.2||26.5||25.8|
|Consumer price inflation, % y-o-y, eop||8.5||1.5||3.9||5.3|
|Exchange rate TTD/USD, eop||6.36||6.42||7.06||8.50|
|Budget balance, % of GDP||-2.5||-4.1||-4.4||-4.1|
|Current account balance, % of GDP||4.5||-3.3||-2.1||-2.5|
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