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Market Conditions | January 2013

Global growth has been weighed down, in large measure, by policy uncertainty surrounding the lack of a speedy resolution to the sovereign debt crisis in the Euro Area and to the fast approaching US debt ceiling crisis. Signs of a deceleration in some key emerging market countries have also dampened expectations for global growth.

In its October 2012 Monetary Policy Report, the Central Bank of Trinidad and Tobago stated that the local economy remains sluggish. Latest available data indicate that the economy contracted by 3.6% (year-on-year) in the second quarter of 2012 and as a whole, energy sector output contracted by an estimated 7.3% in the same period.

They further stated that inflation has retreated from the high double digit rates that were recorded earlier in the year and a major factor behind this deceleration has been the sharp slowdown in food prices, as supply shocks resulting from inclement weather have lessened. With domestic demand still relatively subdued, core inflation has remained fairly stable.

With economic activity still relatively stagnant and headline inflation on a declining trend, the Central Bank maintained an accommodative monetary stance to support a recovery and reduced the Repo rate to an all-time low of 2.75% in September 2012. This has led to commercial banks adjusting their prime lending rates downwards in response. However, it seems that investor confidence has not yet shaken off the effects of the economic and financial crisis of 2008 and credit to businesses which had been staging a modest recovery since March 2012, lost some momentum and slowed to 2.3% in August 2012.

Nevertheless, the Central Bank has advised that there are some underlying signs of an incipient recovery in 2012. In addition, the launch of the CLICO Investment Fund (CIF) on November 01 has brought some closure to the issue of the funds due to CLICO Policyholders and it is hoped that this development will positively impact the confidence of consumers, investors and producers and start the economy on a more certain recovery trend.

Consequently, the Central Bank has projected real GDP growth for the local economy to be in the order of 1.0% in 2012, with a chance of close to 2.5% in 2013 subject to the following assumptions:

a) firms in the energy sector have fully completed their major maintenance operations;
b) the industrial relations climate remains settled; and
c) public investment projects are implemented on time and efficiently.

Similar to the local economy which it traditionally mirrors, the local real estate market, has also been sluggish. The Central Bank has reported that the estimated median price of a three-bedroom house remained unchanged over the last 12 months. In an attempt to stimulate growth in the real estate market, the Government, in its 2012/2013 budget, has proposed certain tax exemptions with respect to residential and commercial buildings and residential land.

It is therefore felt that with the local economy predicted to rise, albeit slowly, and given the proposed tax incentives as well as the excess liquidity and low interest rates now prevailing, the real estate market could show some positive signs within the coming twelve months.

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Trinidad, W.I.
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Trinidad, W.I.
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