A strong performance from the non-hydrocarbons sector of Trinidad and Tobago’s economy has put it on course for steady growth in 2014 and beyond, despite concerns over international oil prices and the prospect of a general election next year.
While the energy sector has long formed the backbone of Trinidad and Tobago’s economy − accounting for nearly 40% of GDP and 85% of export earnings according to official data − segments such as financial services have outpaced oil growth in recent years.
Figures suggest the twin-island’s economy will expand at a steady rate in the short term, supported by pro-growth measures and business-driven policies, although over time, the need for structural reforms will become more pressing.
A report produced in June by the IMF put Trinidad and Tobago’s GDP growth at 2.3% for 2014, forecasting it to ease to 2.1% next year. Giving a more cautious estimate, the Ministry of Finance expects growth of 1.9% this year, up from 1.6% in 2013.
The recently approved 2015 budget, which covers the fiscal year from October 1, 2014 to September 30, 2015, includes a 20% increase in the minimum wage, tax breaks and greater spending on social welfare, which the government hopes will encourage growth on the back of higher domestic consumption. Reducing the deficit from an estimated 3.6% of GDP to 2.3% next year is another target.
Despite its dominant role in Trinidad and Tobago’s economy, the hydrocarbons sector expanded by 1% during the past three years, trailing the non-oil segment, which notched up growth of 2.5% over the same period. Slower growth has been attributed to several factors, led by volatility in oil and gas prices, and lower output due to the depletion of some mature fields. Shutdowns for maintenance and technology upgrades have also weighed on production, while concerns are rising that the shale oil and gas boom in the US could curb demand.
However, the outlook is expected to improve as prices stabilise and output bounces back. The sector received an added boost in July with the announcement that the Spain-based energy company Repsol made a promising discovery at its TB14 well, east of Trinidad.
Across the non-oil sectors, the financial services industry in particular has brought added dynamism to the economy, with figures showing that it now accounts for an estimated 16% of GDP this year from 14% in 2010. The finance, insurance and real estate segments are expected to expand by 5.5% in 2014, while construction and quarrying is forecast to notch up 7.1% growth, buoyed by government spending. In the latest business confidence survey, carried out by the Central Bank of Trinidad and Tobago in the second quarter of 2014, 79% of respondents said they expected their production levels to increase over the next six months, with 66% confident that their financial outlook would improve in the coming year.
In its review of economic management, the IMF said the country’s growth rate appeared to be sustainable, noting that both inflation and unemployment had fallen. The fund also described the external position as healthy, although it warned that reforms and a repositioning of fiscal policy would be needed to boost long-term growth prospects. The IMF, however, expressed concern over “extremely costly” energy subsidies and what it described as “overlapping and poorly coordinated” social programmes.
Most analysts agree that these issues are likely to remain parked until after next year’s general election. Prime Minister Kamla Persad-Bissessar’s Peoples’ Partnership coalition faces a tough re-election challenge from the Peoples’ National Movement. The swing voters, who may well decide the result, account for around 20% of the electorate.
With both political parties known to be broadly pro-business, the overall sentiment remains upbeat with private sector players hoping to benefit from a strong element of continuity in economic policy-making, irrespective of next year’s election outcome.
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