The first nine months of 2014 saw GDP (as measured by the CBTT's Quarterly Real GDP index) growing by a marginal 0.7% as growth of 1.9% in the third quarter supported an otherwise flat performance for 2014. The energy sector continued to underperform as production stoppages curtail output. For the period January - September 2014, the sector fell 1.5%, however, the sector rebounded in the third quarter growing 2.8% after contractions of 2.9% and 4.3% in Q1 and Q2 respectively. While exploration and production and refining activity declined for the period, LNG and petrochemical output was higher during the period. Encouragingly, for the 14th consecutive quarter in September 2014, the non-energy sector expanded, supported by increased activity in construction, distribution and finance.



Inflation for the 12 months to November 2014 was at 9%, significantly higher than the 3% at the start of the year, driven largely by rising food inflation, which is running around 20%. The increase in food inflation reflects the supply challenges experienced on the local market due to the severe weather conditions experienced in the past months. Core inflation though remains well-contained at 1.4% in the 12 months to October 2014, experiencing a generally downward trend. The slowdown in core inflation resulted from slower increases in the recreation and culture as well as transport and health sub-indices.



During the period January-June 2014, the country's balance of payments recorded an overall surplus of USD318.2 million, an improvement from the previous year. However, the current account surplus shrank compared to the previous year reflecting lower merchandize trade balance due to lower energy production as well as higher net outflows of investment income. The capital and financial account though, was able to reverse the 2013 deficit of USD770.4 million to a surplus of USD166.4 million. As at the end of October 2014, gross official reserves rose to USD11.1 billion or 12.6 months of imports of goods and services.



During the period October 20123 - September 2014, the fiscal accounts registered a deficit of 2.7% of GDP, much lower than budgeted due to better collections from the non-energy sector. Due to falling energy prices, the government in January 2015, revised its revenue assumptions to an oil price of USD45/ barrel and natural gas price of USD2.25/ mmbtu from an initial budgeted price of USD80/ barrel and USD2.75/ mmbtu. The revision results in a projected TTD7.4 billion shortfall for the financial year. The government, however, anticipates that savings of TTD1.4 billion is expected as a result of a lower fuel subsidy. Further, the PSIP and current expenditure will be reviewed on an ongoing basis with a goal of saving TTD4.5 billion. This includes infrastructural projects for which funding has not yet been confirmed, lower expenditure on non-critical goods and services and cuts in allocation in selective ministries by 15%. Beyond this, additional shortfalls can be met from revenues generated as a result of the upcoming Initial Public Offering of shares in Phoenix Park Gas Processors Limited.



Private sector lending has improved against a financial backdrop of low interest rates, high liquidity and cautiously optimistic sentiment of the business community. In the nine months to September 2014, business lending rose by an average of 4.5% compared to a decline of 4% over the same period of 2013. Consumer loan demand is also accelerating, growing 7.5% compared to an average of 5% for the corresponding period of 2013. In November 2014, the CBTT raised the repo rate by a further 25 basis points to 3.25%, the second such increase for the year due to threats of inflationary pressures as well as anticipated increase in US interest rates.



In its November 2104 Monetary Policy report, the CBTT revised its initial 2.5% GDP growth projection for 2014 to 0.5%, due to the underperformance of the energy sector. The economy is expected to be supported by the non-energy sector, where construction activity remains fairly robust due to ongoing large public sector programs, as well as private sector projects. Energy prices have dropped sharply since the start of the fiscal year, with oil prices down by 48% and natural gas (as measured by Henry Hub) down by 32%. According to estimates, natural gas accounts for approximately 65% of government energy revenue, while oil accounts for the rest, and overall energy revenue contributed an average of 53% of total government revenue over the past five years. According to S&P, "failure to take timely and sufficient steps to address the deterioration of the country's fiscal and external profile could result in a downgrade." S&P maintains its 'stable' outlook on the country's rating based on the expectation that "T&T will continue to enjoy a sound external profile thanks to persistent current account surpluses and largely local financing of the public-sector deficit." It is expected that that the prolonged fall in global energy prices will result in rising debt levels for the country, and together with falling fiscal revenue, would worsen the fiscal outlook. Further, the external account, particularly the current account surpluses may decline due to weaker merchandize trade as a result of weaker energy prices and production levels.




This report has been prepared by First Citizens Investment Services Limited, a subsidiary of First Citizens Bank Limited. It is provided for informational purposes only and without any obligation, whether contractual or otherwise. All information contained herein has been obtained from sources that First Citizens Investment Services believes to be accurate and reliable. All opinions and estimates constitute the author’s judgment as at the date of the report. First Citizens Investment Services does not warrant the accuracy, timeliness, completeness of the information given or the assessments made. Opinions expressed may change without notice. This report does not constitute an offer or solicitation to buy or sell any securities discussed herein. The securities discussed in this report may not be suitable to all investors, therefore Investors wishing to purchase any of the securities mentioned should consult an investment adviser.


We, First Citizens Investment Services Limited hereby state that (1) the views expressed in this Research report reflects our personal view about any or all of the subject securities or issuers referred to in this Research report, (2) we are a beneficial owner of securities of the issuer (3) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report (4) we have acted as underwriter in the distribution of securities referred to in this Research report in the three years immediately preceding and (5) we do have a direct or indirect financial or other interest in the subject securities or issuers referred to in this Research report.