ECONOMIC OUTLOOKStable

Economic growth in Trinidad and Tobago was interrupted by the scheduled energy sector maintenance work, which was carried out in the third quarter of the year. This resulted in a downturn in real GDP growth, as major energy and energy-related companies aligned their plant turnaround as well. According to initial estimates from the CBTT's quarterly index of real GDP, the Trinidad and Tobago economy contracted by 0.5% during the third quarter of 2013, following positive growth registered in the first two quarters of the year. The decline in GDP was due to a 4.1% contraction in the energy sector. The petrochemical sub-sector declined by a significant 8% in the third quarter of the year. The non-energy sector though is showing signs of a steady recovery, registering growth of 1.9% in the third quarter of 2013, albeit lower than the previous two quarters' performance. Notably, the non-energy sector was boosted by increased activity in Finance, which according to the CBTT was largely attributed to strong performance within the commercial bank sub-sector, as banks recorded growth in both loans and deposits during the second quarter of the year.

INFLATIONStable

Prices moderated significantly towards the end of 2013, with headline inflation declining from 7.25% at the start of the year to the year's low of 2.7% in October, before rising to 4.4% in November 2013. Core inflation remained stable, hovering around 2%. Producer prices were also down, closing the fourth quarter of 2013 at 2.2%, compared to 3.4% registered in the same period of 2012. The major reason for the disinflationary trend was the notable reduction in food inflation, which fell from 12.7% in December 2012, to 7.3% in November 2013. Better weather conditions favorable impacted domestic agriculture supplies as well as lower global food prices contributed to the pullback in local food inflation.

TRADE BALANCE/ BOPStable

For the first half of 2013, the external accounts registered an overall surplus of USD195 million, compared to a deficit of USD87.9 million for the same period of 2012. Higher natural gas prices as well as production levels improved the merchandize trade balance, which supported the current account. The capital and financial account recorded a deficit of USD405.1 million. Net foreign direct investments rose by 16% to USD1.0 billion. At the end of November 2013, gross official reserves were at USD9.3 billion or 10.3 months of import cover.

FISCAL ACCOUNTSStable

Provisional information from the Ministry of Finance and the Economy show that the Central Government operations in fiscal 2012/2013 resulted in a deficit of TTD6.2 billion, which was lower than the initial budgeted deficit of over TTD7 billion. As at the end of March 2013, the total public sector debt stood at 54.3% of GDP, lower than the 57% of GDP recorded in September 2012. The 2013/2014 budget projects that approximately TTD3.0 billion of the overall deficit will be financed through external borrowing. The external debt is projected to increase to about 9.6% of GDP from 8.1% on account of newly contracted commercial loans which are expected to commence disbursements during the fiscal year, as well as new IADB financing. Also, given the country's strong credit rating, a USD550.0 million bond was issued on the international market in mid-December2013 for budgetary support.

TTD YIELD CURVE MONETARY CONDITIONSStable

The highly liquid domestic financial system continues to drive interest rates lower. After reaching a record daily average of TT$8.4 billion in September 2013, commercial banks' excess reserves at the Central Bank fell to TT$7.3 billion in October 2013. However, liquidity levels began to climb back up during the period November 1 – 22, 2013, with banks' excess reserves averaging TT$7.8 billion daily. Indeed, for the first 11 months of 2013, commercial banks' excess reserves averaged TT$6.1 billion monthly, compared to TT$3.6 billion in the same period in 2012.

OUTLOOK

The Central Bank of Trinidad and Tobago forecasts growth of 1.5% in 2013 as a whole to rise to 2.5% in 2014. The IMF is slightly more conservative and projects that growth will rise 1.6% in 2013 and 2.3% in 2014. The main drivers of the non-energy sector are likely to be finance, distribution and construction. Even with the US Federal Reserve scaling back its quantitative easing program, local interest rates are likely to remain at fairly low levels, in light of the high liquidity in the system and the central bank's accommodative stance on monetary policy. However, once US interest rates start to increase, interest rates locally are expected to rise also, in an effort to prevent significant capital outflows. Despite the muted performance of the Trinidad and Tobago economy in 2012 and modest expectations for 2013, First Citizens Research & Analytics holds a stable view on Trinidad and Tobago primarily because of strong external buffers and its favorable fiscal profile.