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Boston, MA -- (SBWire) -- 06/07/2013 --Core Views

Due to tepid global growth, our expectation of a modest recovery in the energy sector and a still-weak non-energy sector, we maintain our view that Trinidad & Tobago (T&T)'s economy will post an average expansion of 3.5% between 2013 and 2017. That said, this implies that the we expect the economic recovery to continue strengthening over the coming quarters following an average contraction of 1.6% between 2009 and 2011.

We expect T&T's fiscal accounts to post modest deficits over the medium term, following nearly a decade of fiscal surpluses, due a continued rise in recurrent expenditures, as well as modest declines in energy production.

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That said, we expect that energy exports will continue to keep T&T's current account in surplus over the coming years. However, declining production and little upside for natural gas prices on the spot market mean that we expect the current account surplus to remain off its highs over the coming years. As such, the diversification of T&T's economy, as well as its export markets will be essential to boosting the country's long-term growth trajectory.

Major Forecast Changes:

We have revised down our 2012 real GDP growth estimate to 0.2%, as recent data showed that economic activity remained relatively weak in H212 on the back of a slow recovery in the energy sector and only modest growth in the consumer sector. That said, we continue to anticipate a modest acceleration in real GDP growth in 2013 to 2.5% as energy output begins to come back online, and the construction, industrial and consumer sectors improve as well.

Given that we believe the authorities will be keen to maintain a stable exchange rate as the economic recovery gains steam, we have adjusted our currency forecasts for 2013 to reflect a slightly stronger exchange rate. Indeed, we forecast the Trinidad & Tobago dollar to average TTD6.4000/US$ this year before ending the year at TTD6.4400/US$, implying modest depreciation from the year-todate average of TTD6.3800/US$.

Key Risks To Outlook:

Downside Risks: Should energy sector maintenance projects continue to drag down production over the coming months, we could see real GDP growth come in below our forecast of 2.5% for 2013. Such a scenario would pose downside risks to our forecast for interest rates to remain on hold at 2.75% through end-2013 as well.

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