Trinidad and Tobago Country Risk Report Q1 2016
Structurally lower crude oil prices will stymie activity in Trinidad & Tobago's energy sector over the coming years, driving a slowdown in headline growth. Moreover, tepid consumer confidence and a pullback in government spending on infrastructure projects indicate that growth in non-energy sectors of the economy will also struggle.
Trinidad & Tobago's nominal budget shortfall will widen in 2015 as lower oil prices drive down energy sector revenues. The Trinidadian government will not reduce expenditures, as it will look to support household spending as labour market dynamics deteriorate.
Lower oil prices will place depreciatory pressure on the Trinidadian dollar over the coming quarters, resulting in a deterioration of the country's terms of trade and weaker investment inflows. Open market operations by the central bank will prevent a significant depreciation of the currency, informing our view that a gradual weakening of the exchange rate is on the cards in the coming quarters.
Major Forecast Changes
We have revised our current account surplus forecasts to 2.9% of GDP in 2015 and 2.1% of GDP in 2016 on the back of a weaker performance in crude oil export values than we had previously expected.
We now expect T&T to enter a recession in 2015 and the economy to contract again in 2016 as the country remains uncompetitive for non-extractive investments and as commodity prices are structurally lower.
- Executive Summary
- Core Views
- Major Forecast Changes
- Key Risks
- Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestic Politics
- Low Oil Prices A Significant Obstacle For New PNM Government
- The People's National Movement will struggle to substantially reduce crime and bolster growth in Trinidad & Tobago in the current low
- oil price environment. Structurally lower prices will weigh on investment and fiscal revenues and make it more difficult to fund anti-crime
- TABLE: POLITICAL OVERVIEW
- Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Growth Outlook
- Hydrocarbons Weakness Will Prolong Recession
- Trinidad & Tobago (T&T)'s recession, which began in Q115, will persist through 2016 as the economy faces significant headwinds
- from structurally lower hydrocarbons prices. Thereafter, T&T will only experience tepid growth, driven by modest expansion in private
- TABLE: ECONOMIC ACTIVITY
- Fiscal Policy And Public Debt Outlook
- Rapid Increase In Public Debt Ahead As Deficit Widens
- Trinidad & Tobago will undergo substantial deterioration in its fiscal accounts over the coming two years as the government expands
- expenditures while revenues fall. This will feed through to a significant rise in the government's debt load.
- TABLE: FISCAL POLICY
- Monetary Policy
- Capital Flight Concerns Will Prompt Further Hikes
- The CBTT's rate hiking cycle will continue into 2016 as the bank remains concerned about capital flight risk in light of an imminent rate
- hike by the US Federal Reserve. Inflation in T&T will steadily rise, however, as the bank's decision to allow for currency weakness will
- cause import costs to increase in 2016.
- TABLE: INTEREST RATE AND INFLATION FORECASTS
- Currency Forecast
- TTD: CBTT Will Slowly Unwind FX Intervention
- In the near term, the Central Bank of Trinidad & Tobago will intervene in currency markets, offsetting downward pressure placed on the
- TTD by declining oil prices. Over time, however, the bank will be forced to allow the currency to depreciate in order to rebalance the
- economy away from its dependence on commodities.
- TABLE: BMI CURRENCY FORECAST
- External Trade And Investment Outlook
- External Account Deterioration Will Boost Capital Flight Risk
- Trinidad & Tobago's external accounts will deteriorate in the coming years as goods exports decline while a relative strong currency
- supports import growth. A highly liquid international investment position will risk potential capital flight, forcing the central bank to draw
- down on reserves.
- TABLE: CURRENT ACCOUNT
- Chapter 3: 10-Year Forecast
- The Trinidad & Tobago Economy To 2024
- Structurally Lower Oil Prices To Drag On Long-Term Growth
- Structural weaknesses and external headwinds from lower energy prices will see tepid real GDP growth in Trinidad & Tobago through
- 2024. Moreover, we see limited upside for growth in non-energy sectors of the economy, including tourism and financial services.
- TABLE: LONG-TERM MACROECONOMIC FORECASTS
- Chapter 4: Operational Risk
- SWOT Analysis
- Operational Risk Index
- Operational Risk
- TABLE: CARIBBEAN - OPERATIONAL RISK
- TABLE: CARIBBEAN - LABOUR MARKET RISK
- TABLE: CARIBBEAN - LOGISTICS RISK
- TABLE: CARIBBEAN - TRADE AND INVESTMENT RISK
- TABLE: CARIBBEAN - CRIME AND SECURITY RISK
- Chapter 5: BMI Global Macro Outlook
- Global Outlook
- Exit The Dragon
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
- TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
- TABLE: EMERGING MARKETS, REAL GDP GROWTH, %