T&T in recession: Central Bank

Trinidad and Tobago has avoided the term ever since the world economic crisis started just over a year ago, but now the Central Bank has admitted that the country is "theoretically in a recession".

Ewart Williams told reporters Thursday after three successive quarters of negative growth the bank is predicting that the Gross Domestic Product (GDP) would decline by about two per cent.

But he was still reluctant to use the "R" word.

"I insist however these conventional definitions need to be taken with a pinch of salt," Williams said, noting that major economies like the United States are coming out of a recession after hitting an unemployment rate of 10.2 per cent.

"Similar unemployment rates are occurring in Europe. Our unemployment rate increased from five to 5.1 per cent. Are we in a recession? Perhaps we are. What’s in a word?" Williams asked.

At the same time why remaining in denial, Williams warned the Manning administration to do its best to achieve a fiscal balance by 2012 in order to avoid "a shaky public debt situation".

He also said it is important to maintain transfers to the Heritage and Stabilisation Fund.

"In order to sustain economic activity, government had to forego its policy of fiscal surpluses to run a rather sizeable fiscal deficit of five per cent of GDP. We had the fiscal space to afford that deficit.

"The budget for 2010 provides for another deficit of around five per cent of GDP. This second deficit is likely to result in an increase in public debt of close to 50 per cent," Williams said.

He sounded an alarm that Trinidad and Tobago is getting close to worrisome public debt levels, adding that "it is important that government takes steps to return to fiscal discipline quickly".

The Bank's Bank Monetary Policy Report, which Williams presented Thursday, shows that the second quarter had 2.2 per cent growth in the energy sector. However the non-energy sector reported a decline of 7.5 per cent.

It shows a decline in manufacturing as wlll as the construction and distribution sectors.

Williams noted that inflation has remained relatively low mainly due to the downturn in the economy and the low private sector confidence. He said based on the Bank's analysis of the economy’s performance for the first half of 2009 and signals from the third quarter, he is not optimistic about any improvement in the private sector demand for the rest of the year.

The Central Bank's revised GDP projections for the year, he said, is a decline of 1.5 to two per cent from a 0.9 per cent GDP growth that was originally forecast in its April 2009 Monetary Policy Report.

Williams said the Bank expects unemployment to grow from its present rate of 5.1 per cent to 5.5 per cent by the end of the year. He said both the business sector and the labour force are under pressure because GDP contracted by one per cent in the last three months of 2008, and by 4.6 per cent at the start of 2009.

He said the decline in GDP was 3.6 per vent at the end of the second quarter of this year.