Nadaleen Singh

T&T is in a re­ces­sion and the full-blown ef­fects will be felt from ear­ly 2016, Cen­tral Bank Gov­er­nor Jwala Ram­bar­ran said yes­ter­day.

He told the Fifth Mon­e­tary Pol­i­cy Fo­rum, host­ed by the Down­town Own­ers and Mer­chants As­so­ci­a­tion at the Hy­att Re­gency in Port-of-Spain, that the coun­try was fac­ing aus­tere eco­nom­ic cir­cum­stances and there was ur­gent need for fis­cal poli­cies to treat with the re­ces­sion and main­tain sta­bil­i­ty.

Ram­bar­ran said the du­ra­tion of the re­ces­sion de­pend­ed on how swift­ly the Gov­ern­ment im­ple­ment­ed fis­cal poli­cies.

He said T&T had a dis­mal first half of 2015, with de­pressed eco­nom­ic ac­tiv­i­ty in the third quar­ter of the year.

"Sim­i­lar weak eco­nom­ic con­di­tions have pre­vailed so far in­to the fourth quar­ter of 2015. Four con­sec­u­tive quar­ters of de­cline in re­al GDP in 2015 means T&T is now of­fi­cial­ly in a re­ces­sion," he said.

Ram­bar­ran said the re­ces­sion was trig­gered by pro­longed sup­ply dis­rup­tions in the en­er­gy sec­tor re­sult­ing in short­falls in nat­ur­al gas which in turn ad­verse­ly af­fect­ed out­put of LNG and petro­chem­i­cals.

"Low­er en­er­gy prices al­so neg­a­tive­ly im­pact­ed the do­mes­tic en­er­gy sec­tor. This has al­ready been re­flect­ed in job loss­es at some en­er­gy com­pa­nies. The de­ci­sion by Arcelor Mit­tal to idle its steel plant will not on­ly af­fect en­er­gy out­put but al­so jobs," he said.

The Cen­tral Bank gov­er­nor said in re­cent years the non-en­er­gy sec­tor had kept the econ­o­my "from veer­ing off its al­ready weak growth tra­jec­to­ry," but now seemed to have lost its mo­men­tum so that weak­ness has crept in­to key sec­tors, in­clud­ing dis­tri­b­u­tion and con­struc­tion.

He rec­om­mend­ed that the Fi­nance Min­istry work with the Cen­tral Bank to come up with the nec­es­sary mon­e­tary and fis­cal poli­cies.

"We have no choice. We can and should work to­geth­er to en­sure we get the poli­cies right for the coun­try's re­cov­ery. We will all be dou­ble damned if spite, vin­dic­tive­ness and ego keep us from work­ing to­geth­er to help our coun­try," he warned

Ram­bar­ran said the Cen­tral Bank ex­pect­ed the econ­o­my to con­tract by 1.5 per cent, in a re­ver­sal from the slug­gish growth of one per cent record­ed last year. The en­er­gy sec­tor is ex­pect­ed to con­tract by more than three per cent and ac­tiv­i­ty in the non-en­er­gy sec­tor is ex­pect­ed to be flat.

No­tice­able signs of the re­ces­sion would start to set in next year when busi­ness­es be­gan to cut back on in­vest­ments, con­sumers held back on spend­ing and bank loans be­came few­er, he said.

T&T last ex­pe­ri­enced a re­ces­sion in 2009 and it last­ed a year. The coun­try ex­pe­ri­enced a se­vere re­ces­sion for sev­en con­sec­u­tive years from 1983 to 1989. (See pages A12 & A15)

Re­spond­ing to his de­trac­tors who crit­i­cised him for in­creas­ing the re­po rate in a short space of time, Ram­bar­ran said the Cen­tral Bank was in­creas­ing the rate grad­u­al­ly to pre­pare the econ­o­my for oc­cur­rences in glob­al mar­kets such as a rate hike by the US Fed­er­al Re­serve.

"The ac­tions we have been tak­ing in re­spect of in­ter­est rates are meant to help in­su­late the econ­o­my so it pro­vides a lev­el of pro­tec­tion and tries to pre­vent things from wors­en­ing. The Gov­ern­ment then has to step in on the fis­cal side and pro­vide an­oth­er lev­el of sta­bil­i­ty to the econ­o­my," he ex­plained

Not­ing that the US Fed­er­al Re­serve can in­crease its in­ter­est rate at any time, Ram­bar­ran said the Cen­tral Bank had been grad­u­al­ly in­creas­ing its pol­i­cy in­ter­est rate since Sep­tem­ber 2014.

At its De­cem­ber meet­ing, the Cen­tral Bank's Mon­e­tary Pol­i­cy Com­mit­tee (MPC) agreed to raise the re­po rate by 25 ba­sis points to 4 3/4 per cent. Ram­bar­ran said al­though this was the eighth con­sec­u­tive hike, the MPC viewed that stance as ac­com­moda­tive.

What is a re­ces­sion?

It is a pe­ri­od of de­clin­ing eco­nom­ic ac­tiv­i­ty through­out an econ­o­my, gen­er­al­ly de­fined as a con­trac­tion in the over­all out­put that lasts for more than six months.

The 2015 re­ces­sion in T&T, which start­ed at the be­gin­ning of the year, has been caused by a re­duc­tion in the coun­try's pro­duc­tion of nat­ur­al gas and the sharp de­cline in en­er­gy rev­enues be­cause of the col­lapse of the ex­port prices for LNG, oil and petro­chem­i­cals such as am­mo­nia, urea, methanol and iron and steel.

The slow­down of the en­er­gy sec­tor has in­fect­ed the non-en­er­gy sec­tor.

The mark­ers of a re­ces­sion in­clude in­creased un­em­ploy­ment, stag­nant or de­clin­ing wages, a re­duc­tion in re­tail trade and a slow­down in pro­duc­tion in man­u­fac­tur­ing.

Work­ers in the en­er­gy sec­tor are al­ready feel­ing the pain of the re­ces­sion:

�2 hun­dreds of work­ers were thrown on the bread­line when Arcelor­Mit­tal moth­balled its iron and steel plant on the Point Lisas In­dus­tri­al Es­tate;

�2 scores of work­ers at state-owned NGC are fac­ing Christ­mas with­out their tra­di­tion­al bonus­es and in­cre­ments;

And the Gov­ern­ment has or­dered min­istries, de­part­ments and state en­ter­pris­es not to spend as lav­ish­ly on Christ­mas par­ties this year as in pre­vi­ous years

If a house­hold suf­fers an in­come freeze–or worse yet has a bread­win­ner who is laid off–the ra­tio­nale re­sponse is to spend less by cut­ting out lux­u­ries, sell­ing as­sets, draw­ing down on sav­ings and bor­row­ing mon­ey.

Work­ers not di­rect­ly af­fect­ed by job cuts al­so tend to re­duce their spend­ing as they fear that they may be next. As T&T dis­cov­ered in the 1980s, less spend­ing by the pop­u­la­tion means a re­duc­tion in sales by re­tail­ers, which trans­lates in­to job loss­es in the re­tail sec­tor as well.

Even­tu­al­ly, as the pop­u­la­tion spends less, the gov­ern­ment col­lects less tax­es, es­pe­cial­ly the Val­ue-Added Tax, which means that re­ces­sions al­most al­ways lead to a re­duc­tion in a gov­ern­ment's tax col­lec­tion.