After two years of contraction, the Trinidad & Tobago economy is expected to have returned to growth in 2018, fuelled by increased energy sector returns and a recovery in strategic non-hydrocarbons sectors, including manufacturing and insurance.
The T&T economy entered positive territory for the first time in two years in 2018, according to estimates from the Central Statistics Office (CSO) and the IMF, after two years of declining energy sector returns led to negative growth of 6.1% and 2.6% in 2016 and 2017, respectively.
The CSO’s “Review of the Economy 2018”, published in October, forecast the economy to expand by 1.9% in real terms, while the IMF in September estimated growth of 1%.
This came on the back of year-on-year growth of 3.2% in January to March followed by 2.8% in April to June – the first instance of consecutive quarterly growth since 2014, according to the central bank.
See also: The Report – Trinidad & Tobago 2018
Increase in gas production drives economic recovery
The return to growth in 2018 was underpinned by a recovery in gas output to the highest levels seen since 2015, driven by the Trinidad Onshore Compression project and the Juniper field, which reached full production during the year, according to the CSO.
Despite a continued decline in oil exploration and extraction, the CSO said the energy sector, supported by higher commodity prices, was on track to expand by 2.2% in 2018, while the IMF expected even more robust growth of 6%. However, a fall in global oil prices – from yearly highs of around $86 per barrel in early October to just over $50 per barrel by the end of the year – could impact fourth quarter returns.
The higher levels of gas production increased supply to key downstream industries such as liquefied natural gas (LNG) and petrochemicals. LNG output averaged 1.9bn standard cu feet per day between October 2017 and July 2018, compared to 1.7bn in the same period a year earlier, while petrochemicals, supported by higher menthol and urea output, rose by 12.5% over 2018, according to CSO projections.
Up and downstream gas activity is expected to continue supporting energy sector expansion over the medium to long term. In the second half of 2018 both the Iguana field off the west coast of Trinidad and the Dolphin Extension Phase 3 project off the east announced their first deliveries of natural gas.
These recent developments, coupled with the government’s commitment to a programme of exploration and development for the next five years, should ensure that production levels continue to expand in 2019 and beyond.
Manufacturing supports upturn in non-hydrocarbons sector
The increased supply of gas to the downstream segment also supported an improved performance in the non-hydrocarbons sector in 2018. While growth is projected to be marginal, at 0.01%, according to the CSO, it is anticipated to be higher than the -2.9% recorded for 2017.
Manufacturing was the main driver of this trend change. The sector is expected to reverse two years of negative growth to expand by 7.3% in 2018, supported not only by LNG and petrochemicals, but also a substantial upswing in the food, beverages and tobacco products industry, with growth of 5.6% projected for 2018, up from -12% in 2017.
Growth was also bolstered by the financial and insurance sector, which is set to grow by 1.1% in 2018, continuing its trend of positive growth over the past five years. As the effects of new legislation enacted in 2018 intended to insulate the sector against external shocks by reinforcing oversight begin to show results, the state anticipates further growth fuelled by increased credit allocation to businesses and private customers.
Tax reforms bolster state revenues
In tandem with the recovery of the energy sector, T&T’s economy also benefitted from government moves to improve its fiscal position by making changes to the tax system.
Total revenue and grants for the financial year 2018 are expected to reach $42.6bn, a 17.7% increase over the previous year. According to the CSO, this was due in large part to the introduction of a 35% tax bracket for commercial banks, increased receipts from oil companies, and goods and services taxes.
This result, coupled with a projected 1.7% decline in state spending to $48.9bn – supported by an 8.2% decrease in wages and salaries, and a 5.9% cut in transfers and subsidies – contributed to the first reduction in the overall deficit in seven years to $6.3bn, or 3.9% of GDP, according to the CSO.
Despite the fiscal improvements, delayed implementation of key adjustment measures, such as the establishment of the Revenue Authority, the body to be charged with tax collection, and reintroduction of the property tax, coupled with continuing high levels of public debt, mean T&T’s economy remains vulnerable to any external shocks, according to the IMF.
In September the fund said the government should take advantage of the high-oil-price environment to continue improving its fiscal position, in particular by implementing delayed tax reforms, including changes in energy taxation, increasing tax compliance and reducing public spending.