2007 - Central Bank of Trinidad and Tobago

CENTRAL BANK OF TRINIDAD & TOBAGOANNUAL ECONOMIC SURVEY 2007Overview ofEconomic Developmentsin 2007 and Prospects for 2008(a)Overview of EconomicDevelopments in 2007Financial turmoil and economic uncertainty in global markets...During 2007, the lingering effects of the sub-prime crisisprecipitated a severe credit crunch leading to turmoilin global financial markets. Total losses from the crisishave been estimated at around US$ 1 trillion by theInternational Monetary Fund. At the same time, thesharp rise in housing loan defaults and foreclosuresalong with escalating oil prices spawned a discernibleslowdown in the US economy, raising concerns aboutthe emergence of a recession. During the fourthquarter of 2007, US economic growth slowed to 0.6per cent bringing growth for 2007 as a whole to 2.2 percent down from 3.0 per cent in 2006. The US authoritiesundertook a number of measures to mitigate theimpact of the credit crunch and to avert the onsetof a recession. These measures included sharp cutsin the federal funds rate, the introduction of a termauction facility to provide short-term liquidity supportto banks in distress and a fiscal stimulus package ofrebates to tax payers and tax relief to businesses ofaround US$170 billion.but domestic economy maintains a robust pace of growth...Amid the turbulence in global financial markets andthe slower pace of global economic growth, thedomestic economy continued to grow at a relativelyrobust pace. Real GDP increased by 5.5 per cent in2007 compared with 12.2 per cent in 2006 when afull year’s production from two completed energyplants – Atlantic LNG Train IV and M5000 – resulted in asignificant rise in energy sector output. With no additionsto energy plants, the temporary closures of some energyplants in the first half of the year and the effects of thenatural maturation of oil fields, crude oil output fell by15.9 per cent to 43.6 million barrels contributing to lessrapid growth (4.4 per cent) in the energy sector in 2007relative to 2006 when the sector grew by 21.4 per cent.In contrast, the non-energy sector maintained asteady growth momentum with real value addedincreasing by 6.7 per cent, roughly the same pace asthe previous year. Of some significance though is thefact that the rate of growth of the non-energy sector,especially in an environment of relatively high energyprices, surpassed that of the energy sector for the firsttime since 1997. The main impetus to the robust nonenergysector performance came largely from relativelystrong growth performances in Finance, Insurance andReal Estate (10.5 per cent), Distribution (10.3 per cent),Manufacturing (8.0 per cent) and in the Construction(5.2 per cent) sectors. The Agricultural sector continuedto experience declining levels of activity in 2007 withreal GDP falling in 2007 by 5.9 per cent as sugar canefarmers exited the industry in light of plans to close theSugar Manufacturing Company at the end of the 2008crop season. Export Agriculture also showed a markeddecline on account of adverse weather conditions.4