Global Growth Increases
The global growth forecast for 2018 was recently revised upwards to 3.9% (from 3.7%) by the International Monetary Fund (IMF) in its January 2018 World Economic Outlook. The revision reflects the increase in global growth momentum in the advanced economies as well as the expected impact of the recent changes in US Tax Policy. Also experiencing an upward revision were the English and Dutch-speaking Caribbean where the average growth is now projected at 1.4% according to the Economic Commission for Latin America and the Caribbean (ECLAC).
Mixed Signs Locally
Locally however, there were mixed economic signs. While provisional data from the Central Bank’s Quarterly Index of Real Economic Activity (QIEA) for the third quarter of 2017 (year-on-year) suggest that energy output expanded by 13.5%, the non-energy sector was estimated to have declined by 1.9% which was the slowest quarterly rate since the fourth quarter of 2015.
In this environment of sluggish economic activity, the latest available labour market information from the Central Statistical Office (CSO) showed that the unemployment rate increased to 4.5% during the first quarter of 2017 (3.8% in the first quarter of 2016) while headline inflation remained low over the second half of 2017 (1.3% in December).
Although the weak domestic output and low inflation provided a case for lowering the ‘repo’ rate in order to support economic activity, it was realized that this could also push interest rates downward, further narrow interest rate differentials between TT and US short term rates, and increase pressures in the foreign exchange market. Consequently, the Central Bank decided to maintain its neutral monetary policy stance and leave the ‘repo’ rate unchanged.
Mortgages Remain Strong
Meanwhile, in the real estate market, mortgage lending remained strong over the six-month period to December 2017. Apparently helped by lower interest rates on mortgages, mortgage loans rose by 8.0% in December 2017. For the quarter ending December 2017, the Central bank stated that the weighted average lending rate on new mortgages declined by 11 basis points to 5.7% – the rate on new commercial mortgages declined by 33 basis points to 6.6% while the rate on new residential mortgages declined by 8 basis points to 5.0%.
As stated by us in the recent past, there is now somewhat of a glut in the residential and especially the commercial real estate rental space available which led to a drop in rental rates. Despite this, positive signs are now evident with the commissioning of Unicomer Limited’s Freeport Campus, Baron Foods Limited’s manufacturing facility in Chaguanas and the opening of the new branches of both Excellent Stores in the Shops of Arima Plaza and the Royal Castle branch in Mayaro.
Overall, the growth prospects for the Trinidad and Tobago economy have also improved over the short to medium term owing to an upturn in the energy sector. This upturn reflects a boost to natural gas production from several new projects (EOG’s Sercan field, bpTT’s Trinidad Onshore Compression Project and the Juniper field) and could be extended with the start-up of bpTT’s Angellin project scheduled for 2019. The sector’s performance has also been enhanced by higher than budgeted oil prices and a more stable oil market following OPEC’s decision to extend the Group’s production cuts to the end of 2018.
It seems therefore that a turnaround to some extent is possible within the near future and the Minister of Finance has stated that local economic growth is now projected to be between 1.5-1.8%. Should this materialise, the Housing Construction Incentive Programme announced in the 2018 National Budget presentation would now be more attractive and could therefore be expected to generate a lot of activity in the real estate industry. Only time will tell whether all of this could be the silver lining that investors have been awaiting.
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