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Market Conditions | July 2019

“Mixed” signals for the Local Economy

According to the IMF’s April 2019 World Economic Outlook, global economic growth has continued to lose momentum and is expected to slow to 3.3 per cent in 2019. The downside risks to global growth include an escalation of the on-going trade dispute between“Mixed” signals for the Local Economy the US and China as well as a “no deal” withdrawal of the United Kingdom from the European Union (Brexit).

As for the local economy, there are ‘mixed’ signals. On the one hand, the international credit rating agency Standard and Poors recently lowered the long-term foreign and local currency sovereign credit ratings on Trinidad and Tobago to ‘BBB’ from ‘BBB+’. The decision they said was based on lower-than-expected energy production and economic growth which it expects to weaken. They however reaffirmed its stable outlook which, according to them, took into account the “expectation of a subdued gas sector with a slow recovery in oil production, which will support a gradual acceleration in economic growth.”

Nevertheless, according to the May 2019 Monetary Policy Report of the Central Bank of Trinidad & Tobago, “there is evidence of an energy-led recovery in economic activity in 2018”. It referenced the boost to natural gas output from the Juniper project that positively affected downstream production of petrochemicals and liquid natural gas (LNG). The report went on to state that “More recent information shows that natural gas production rose further in the first two months of 2019 with the coming on stream of new gas from the Angelin platform.” It was however noted that crude oil production continued to decline owing to mature acreage.

These somewhat diverging views of the economy could be one of the reasons why growth in lending to businesses has been subdued according to the Central Bank. It should also be noted that while inflation continued to be low in early 2019 with headline inflation at 1.2% (year-on-year) in May 2019 and core inflation at 1.2 %, the latest available data from the Central Statistical Office (CSO) revealed that the unemployment rate increased to 4.8% in 2017. In addition, retrenchment notices filed with the Ministry of Labour and Small Enterprise Development indicate that retrenchments were higher by over 53.2% (excluding the layoffs due to the closure of the Petrotrin oil refinery) in 2018. In January-May 2019, retrenchments continued to rise to 631 persons compared with 412 persons in the similar period in 2018.

In the real estate sector, it was reported that activity was slow and there remains an oversupply of commercial rental space. On the residential side, agents have also reported a general slowdown in the market especially for high-end rentals. Interest rates on new residential mortgages that have been declining since 2017, fueled an expansion in real estate mortgage lending which expanded by an average of 7.9% in 2018 (vs. 5.4% average growth rate in 2017) while in March 2019 it grew by 8.8%.

Although lending to the construction sector remains depressed after declining throughout 2018 and into 2019, recent data for the first quarter of 2019 reflected an increase in local sales of cement that would suggest a possible pick-up in activity in the construction sector. It was also noted that the Index of Retail Prices of Buildings Materials grew 1.0% in the opening quarter of 2019 year-on-year.

The immediate future of the real estate market therefore appears cloudy. With two upcoming elections (Local and General) it is expected that there will be increased expenditure in the coming 12-18 months. What effect this will have, if any, on real estate values remains to be seen.

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