Transcript CARICOM Fiscal Convergence - Association of Real Estate Agents

Anthony Birchwood
Caribbean Center for Money and Finance
Presented at the Association of Real Estate Agents Annual
Seminar, Queens Hall
2010, May 19
THE ECONOMIC OUTLOOK 2010.
Global Environment
 Caribbean recorded a downturn in 2009, following the
downturn of the global economy.
 Global economy slumped in 2009 to -0.6%, from 3% in
the previous year. It was 5.2% in 2007.
 Some evidence of recovery in the first quarter of 2010,
but much of the recovery was assisted by fiscal stimulus
packages in respective countries.
 US registered the largest stimulus package of 2.9% of GDP.
 Recovery not expected to cause growth to reach 2007
levels for the next two years. Forecasted to reach just
over 4% for both years.
Drag on Economic Growth in advanced
industrialised countries
 Growth not fully transmitted to the private sector.
 Confidence is lacking in the corporate business sector
and credit remains tight.
 Job creation is slow and average unemployment in the
advanced economies reached 8%.
 World trade slumped in 2009, but evidence is that it is
picking up on account of demand from China and India.
Growth in the Caribbean
 Weighted average growth in the Caribbean
slumped to minus 2.8% from 0.4% in the
previous year.
 Performance of the region was mixed.
 Positive Growth registered by Guyana (2.3%),
Haiti (2.9%) and Suriname (2.5%).
 Reversals in growth recorded where some
countries moved from positive growth in 2008 to
negative growth in 2009: The Bahamas (-5.0%),
Barbados (-4.8%), Belize (0.0%), ECCU (97.3%),
Jamaica (-2.7%) and Trinidad and Tobago (-3.2%).
Slowdown of Caribbean economies
 Given the slowdown of Caribbean countries,
there was widespread and dramatic decline in
inflation rates.
 Weighted average inflation rates for the Caribbean fell to 6.6% in
2009, having been 12.5% in 2010.
 Symptomatic of the slowdown in the region,
unemployment increased. Job losses occurred
especially in the leading export sectors,
distributive trades, construction and
manufacturing.
 Fiscal balances worsened. Lower fiscal revenues
and higher capital expenditure positions.
Slowdown of Caribbean
economies (cont’d)
 External current account balance:
 Surpluses were registered by Aruba, Guyana and
Trinidad and Tobago. But surpluses reduced
compared to the previous year.
 Commodity prices fell in 2009, but prices
picked up between December 2009 and
January 2010.
 Tourism declined in 2009, but it showed signs
of rebounding in 2010.
Slowdown of Caribbean economies
(cont’d)
 External capital inflows and outflows declined in
most economies.
 Capital outflows fell drastically for Trinidad and
Tobago.
 Except for Guyana, the Debt stock increased in
the other territories.
 Many countries sought the assistance of the IMF
through standby programs, exogenous shocks
facility, emergency shocks and emergency
assistance.
 Debt levels was severe in some territories, thus
limiting fiscal space.
Performance of Trinidad and
Tobago.
 After going through a recession where there
were four consecutive quarters of decline,
real GDP increased by 0.8% in the first
quarter of 2010.
 Growth fell from 13.5% in 2006, to 4.6% in 2007,
2.3% in 2008 and -3.2% in 2009.
GDP Growth in Trinidad and
Tobago
16
14
12
10
8
6
4
2
0
-2
-4
-6
2006
2007
2008
2009
Recovery of energy sector
 Energy sector showed signs of
rebounding
 production and prices picked up with
respect to petrochemicals and natural
gas.
 Manufacturing showed signs of
rebounding as in the first quarter the
sector showed slightly higher output
mainly through food processing and
assembly industries.
Spillovers to the domestic
economy
 Spillovers to the non-energy sectors have
been slow.
 Declines in retail sales (10%), wholesale trading
(6%), bank credit (4.4%), consumer credit (2.29%),
business credit (3.8%) and construction (4%).
 Unemployment rate declined to 5.2 per cent
at the end of 2009, compared to 5.8% in the
previous quarter.
 Headline Inflation fell to the lowest level of
1.3%.
Further indicators of recovery.
 Cement sales for the first 2 months of 2010
picked up by 5% compared to the same
period of 2009.
 New vehicle registrations increased by 12% in
the first 2 months compared to the same
period of 2009.
 Significant increases in energy production.
Fiscal and Monetary Policy
 Recovery assisted by fiscal stimulus of TT$7.7
billion or 5.4% of GDP.
 Fiscal deficit was less than projected because
energy revenues rose and expenditures on
capital projects was less than expected.
 External debt was 6% at the end of 2009.
 Central bank still has room to further lower
policy rate (repo rate) to lower interest rates and
stimulate the private sector. Rate is currently
5%.
Foreign exchange and Exchange rate
 Gross official international reserves stood at
US$8.6 billion, or 12.3 months of imports —
by far the highest in the region.
 Sale of foreign exchange to the market in
2009 was greater than in the previous year.
 US$1.9 billion sold in 2009, compared to US$0.8
billion sold in the previous year.
 Pace of central bank intervention slowed in the
first quarter of 2010.
Demand for loans
 Prime lending rates and longer term interest
rates declined in keeping with the reduction
of the repo policy rate by the central bank.
 Yet still overall credit demand remained
subdued.
 Credit to businesses and households declined.
 Private sector demand remain weak.
 However, on a year on year basis, the value of
mortgage loans outstanding increased by 5.1% in
January 2010, compared to 15.8% in January of
the previous year.
Real Estate sector
 Slowdown in mortgage loans.
 Mortgage credit rose but by a slower rate of 8% in
the 12 months leading to January 2010. This is in
sharp contrast to the previous year when it rose by
17.1%.
 Interest rates on New residential mortgage loans
(NRM) fell between October to December 2009.
 Interest rates on 53.6% of NRM fell between 8.1%
and 9.00% in contrast to the previous period when it
was 21.2%.
Factors Impacting the demand
for mortgage
 Fall in real estate prices can bring real estate
within the reach of potential purchasers.
 Excess liquidity may have prompted a drop in
mortgage rates.
 Lower debt servicing cost may have created
further incentives for home acquisitions.
 Bulk of demand for new mortgages may
have been to cover renovations on existing
homes given slow down in construction
industry.
Prospects for Trinidad and
Tobago.
 Once global development is sustained, the
domestic economy is expected to recover.
 Crude oil prices should at least be in the US$ 75-80
per barrel while gas prices should be around
US$4.00 per mmbtu.
 Chances are that a sustained recovery is likely to
spill over to the private sector.
 Recovery of the domestic economy should raise
demand in the real estate market.
 Mortgage lending is expected to intensify once
recovery is sustained.