The Central Bank of Trinidad and Tobago (CBTT) says the coronavirus (COVID-19) has affected all aspects of the local economy this year, as it warned that the world economic performance will be severely impacted by the emergence of the virus.
In its July Economic Bulletin released here on Tuesday, the CBTT noted that the International Monetary Fund (IMF) in its June 2020 World Economic Outlook (WEO) Update is anticipating global growth to contract by 4.9 per cent in 2020.
Finance Minister Colm Imbert is due to deliver the 2020-21 national budget on October 5.
The CBTT said that in the Trinidad and Tobago situation, the energy sector is expected to slow as global economic activity and international travel have been curtailed, resulting in significant contractions in demand for many energy products.
“The non-energy sector will also continue to be impacted in a climate of uncertainty as to the course of the disease and the implementation of needed measures. Moreover, global supply disruptions will have knock-on effects on domestic manufacturing, and wholesale and retail trade. Inflation is expected to stay subdued” the Central Bank noted.
It said that working conditions, including shift lengths and timing, rostering and ‘work from home’ arrangements, have already adapted to the changed circumstances in recent months and will continue to evolve.
“The room for additional fiscal accommodation will be fairly narrow in the current circumstances, while the prevailing high excess liquidity will influence the timing of fresh monetary policy actions”.
But the CBTT has noted that overall, the impact of the pandemic has heightened, indicating the imperative for coordinated fiscal, monetary and structural policies for assuring macroeconomic stability.
In its analysis, the CBTT noted that on the domestic front, activity in the energy sector declined in the second quarter of 2020.
It said broad contractions were observed in this sector, including natural gas, crude oil, liquefied natural gas while methanol output improved.
Outside of energy, indicators monitored by the Central Bank suggest that activity across the non-energy sectors was uneven and somewhat lethargic in the first quarter of 2020.
It said the financial and insurance, and real estate sectors remained resilient and activity in the electricity and water, excluding gas, and manufacturing excluding refining and petrochemicals sectors increased.
At the same time the wholesale and retail trade, excluding energy, construction and transportation and storage sectors posted declines.
“As in the rest of the world, the global pandemic has had a dampening effect on output that is likely to persist into the final quarter of 2020.COVID-19 has also impacted Trinidad and Tobago’s labour market, either directly or via the mitigation measures employed to restrict the virus.
“The national ‘Stay-at-Home’ public health measure implemented in March 2020 contributed to labour market adjustments such as furloughed employment, layoffs, pay cuts, and reductions in working hours.”
The CBTT noted that there was a sharp falloff in demand for labour, and job advertisements in the print media declined by 43.4 per cent during the first half of 2020.
It said retrenchment notices filed with the Ministry of Labour and Small Enterprise Development (MLSED) show that 363 persons were retrenched during the first half of 2020, with the majority of layoffs occurring in the manufacturing industry.
The CBTT said domestic inflation remained low in the early months of 2020, partly reflecting slow consumer demand. Headline inflation measured 0.4 per cent in March 2020, unchanged from January 2020.
The Central Bank said core inflation remained weak at 0.2 per cent due to slower price increases in the health sub-index, while an uptick in food inflation to 1.2 per cent was a result of higher prices for vegetables.
The Energy Commodity Prices Index (ECPI), which is an indicator of the average prices of Trinidad and Tobago’s energy exports, declined 30.1 per cent during the first eight months of 2020.
Following low energy demand and excess supply at the close of 2019, international crude oil prices were further suppressed by geopolitical tensions and adverse demand shocks emanating from the COVID-19 pandemic.
The CBTT said that the benchmark West Texas Intermediate (WTI) oil price fell 33.3 per cent to an average of US$38.05 per barrel over the first eight months of the year.
Meanwhile, the Henry Hub (HH) natural gas price declined by 29.1 per cent to average US$1.86 per million British Thermal Units (mmbtu) over the same period.
The CBTT said that the Central Government operations registered an overall deficit of TT$10.7 billion (One TT dollar=US$0.16cents) during the first nine months of the fiscal year 2019/20.
It said this was larger than the deficit of TT$4.8 billion recorded in the corresponding period one year earlier and was due to lower revenues, which outpaced the decline in expenditure.
The Central Bank said that the deficit was financed by a combination of external and domestic borrowings and withdrawal from the Heritage and Stabilisation Fund (HSF).
“At the end of July 2020, net public sector debt outstanding increased to TT$120.5 billion (71.7 per cent of GDP) from TT$103.2 billion (62.2 per cent of GDP) in September 2019. In the Mid-Year Budget Review (June 2020), it was indicated that the fiscal accounts are anticipated to record a deficit of TT$14.5 billion in FY2019/20 compared to original estimates of TT$5.3 billion.
“The larger deficit is attributable to a falloff in revenue caused by a slump in energy prices, coupled with a rise in expenditure for support measures amid the COVID-19 pandemic. Some of these measures included salary relief and income supports grants, rent relief grants, accelerated income tax and VAT refunds, and additional food cards,” the CBTT said.
It noted that the Central Government issued a US$500 million bond on the international capital market in June 2020 for budgetary support and refinancing purposes
It said multilateral support, such as the US$20.0 million loan facility approved by the World Bank in July 2020, was also tapped to address the fallout from COVID-19.