Boston, MA -- (SBWIRE) -- 10/02/2013 -- Core Views

Due to weakening US demand for oil and gas imports, a still-developing non-energy sector, and continued delays at key maintenance projects within the energy sector, we forecast Trinidad & Tobago (T&T)'s economy will post an average expansion of only 3.0% 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 1.2% between 2009 and 2012.

The Trinidadian government's efforts to stimulate the economy by ramping up capital expenditures will see the nominal fiscal deficit widen to 3.1% and 3.3% of GDP in 2013 and 2014 respectively, from 2.5% in 2012. We expect the deficit to peak in 2015, after which an increase in revenue from energy exports to Asia and a moderation in expenditures will lead the budget deficit to shrink to 1.7% of GDP by 2017.

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T&T's current account will remain in surplus in the coming years, due to stronger energy export growth and an increase in remittance inflows. We believe that the current account surplus will help to cover a financial and capital account deficit, although we note that rising foreign direct investment into the energy sector could lead to a more moderate deficit than in prior years.

The Central Bank of Trinidad & Tobago (CBTT) will hold the benchmark policy rate at 2.75% through end-2013, maintaining its accommodative stance to spur the country's nascent economic recovery.

In 2014, stronger economic growth will see the CBTT shift towards addressing inflation concerns, and we forecast 50 basis points of hikes to 3.25% next year.

Major Forecast Changes

While we continue to expect a recovery of 2.5% real GDP growth in 2013, from 1.2% in 2012, we have revised down our real GDP forecast for 2014 to 2.6%, from 3.0% previously, as a mixed outlook for T&T's energy sector will prevent the country from seeing faster economic growth over the coming years.

Key Risk To Outlook

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 also pose downside risks to our forecast for interest rates to remain on hold at 2.75% through end-2013.

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