Published in CONTACT Magazine
The domestic landscape
The local economy appears to be in a state of modest recovery.
In his mid-year review, the Minister of Finance indicated that the economy is now recovering from its protracted period of contraction. This analysis was supported by the Concluding Statement from the International Monetary Fund’s (IMF) 2018 Article IV Mission. The IMF acknowledged the turnaround in economic growth, and forecast that Real GDP growth would be modestly positive at 1.0 per cent in 2018 and 0.9 per cent in 2019.
The World Bank’s June 2018 Global Economic Prospects Report was more optimistic, estimating 1.6 and 1.9 per cent GDP growth in 2018 and 2019 respectively.
These numbers, while a welcome change from -6.1 per cent in 2016 and -2.6 per cent in 2017, indicate that there is still work to be done to ensure that our economy enjoys long-term stability and growth. This is of particular concern in light of the comparatively sluggish growth of the non-energy sector.
For 2018 and 2019 the IMF’s Article IV Mission Concluding Statement predicted that the energy sector would grow by 6.0 per cent and 2.4 per cent respectively. On the other hand, the non-energy sector was predicted to grow by -1.8 per cent in 2018 and 0.0 per cent in 2019.
Gerry Brooks, Chairman of the National Gas Company of Trinidad and Tobago, in his feature presentation at the Trinidad and Tobago Chamber’s Business Outlook 2018/2019, underscored the importance of developing the non-energy sector. He noted the critical need for digitisation of both government services and private sector to increase their levels of productivity.
The IMF’s global economic growth outlook remains positive at a robust 3.9 per cent (World Economic Outlook, April 2018). However, the recent escalating trade tensions present an increasing risk to medium-to-long-term growth prospects globally.
Trade tensions started to escalate in early March, with the United States’ announcement of its intent to levy steel and aluminum tariffs for national security reasons. This primarily affected Canadian, Mexican and EU trading partners, who implemented retaliatory tariffs.
In addition, billions of dollars in tariffs were announced on Chinese products. In response, China unveiled its own list of US exports that would be subject to tariffs. The targets of the proposed Chinese tariffs included popular agricultural goods, such as “soybeans, corn, beef, orange juice and tobacco”.
These potential “trade wars”, involving major economies, could well have far-reaching effects due to uncertainty in future trading relationships and geopolitical stability.
According to a June 2018 World Investment Report from the UN Conference on Trade and Development, foreign direct investment (FDI) around the globe is on the decline. Global FDI flows fell by 23 per cent in 2017, to US$1.43 trillion from US$1.87 trillion a year earlier.
FDI to Latin America and the Caribbean, however, rose 8 per cent to reach $151 billion in 2017. This was the first increase in six years, driven by the economic recovery in the region.
According to the IMF’s April 2018 Regional Economic Outlook Report, growth prospects for the Latin America and Caribbean region have been revised upwards since October 2017, to 2 per cent in 2018 and 2.8 per cent in 2019, driven in part by recovery in economies that experienced recession in 2016, and by favourable global demand and world trade.
World Bank estimates were more conservative, at 0.8 per cent in 2017, with a downward revision to 1.7 per cent in 2018, and 2.3 per cent in 2019 (June 2018 Global Economic Prospects Report).
According to the World Bank, for service-exporting economies such as Jamaica, Grenada and St Lucia, strong external demand has resulted in tourism sector growth, as demonstrated by tourist arrivals in the Caribbean reaching an all-time high in 2017 (June 2018 Global Economic Prospects Report).
However, the devastation suffered during the 2017 Atlantic hurricane season drastically slowed growth for some islands. Dominica’s GDP growth is expected to decline by 16.1 per cent in 2018, with recovery predicted in 2019 as reconstruction efforts take hold. (TTCIC)