THE ECONOMIC OUTLOOK 2010.

Anthony BirchwoodCaribbean Center for Money and FinancePresented at the Association of Real Estate Agents Annual Seminar, Queens Hall2010, May 19

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

2006 2007 2008 2009

-5

0

5

10

15

Recovery of energy sector Energy sector showed signs of

reboundingproduction 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.