GEISHA KOWLESSAR-ALONZO
With energy sector revenue not projected to increase substantially, the foreign exchange market is expected to remain very tight over the next two years, while government’s fiscal constraints are envisaged to linger. In this regard, the thrust to complete and gain significant momentum in key public projects in 2025 could result in a larger fiscal deficit than the 2.9 per cent of GDP projected in the 2025 budget, while public debt could rise further.
This is the forecast of Garvin Joefield, economist at Republic Bank Ltd during an interview with the Business Guardian.
In sharing further thoughts on what the T&T economy could look like in 2025, Joefield said overall, real GDP is expected to grow by 2.4 per cent in 2025 but it could remain below pre-pandemic levels.
“The performance of the energy sector is expected to improve slightly in 2025 with new gas output scheduled to come onstream during the year. This includes the joint venture between EOG Resources (EOG) and bpTT, targetting the Teak, Samaan and Poui, Mento and Reggae acreages (February 2025), bpTT’s Cypre project (March 2025) and new output from Touchstone Exploration’s Cascadura field (August 2025),” he said.
According to Joefiled, amid a decline in production from mature fields, these projects may help to slow the contraction, even as they are not expected to cause a significant increase in gas production.
In this regard, they could provide a temporary ease as the country looks forward to developing the larger gas reserves that straddle its border with Venezuela, including Cocuina-Manakin, Dragon and Manatee. However, he noted that with US President-elect Donald Trump’s administration set to assume control in January 2025, there is, understandably, significant concern that these projects could be impacted by new US sanctions on Venezuela.
Joefield added that no major increase in global oil and gas prices is predicted to occur in 2025, notwithstanding the recent decision by OPEC+ to delay the reversal of a portion of its production cuts to April 2025.
To support prices, he noted the group cut a total of 5.9 million barrels per day (b/d) from its output in a series of agreements dating back to 2022, stating that it had previously announced plans to begin to gradually reverse those cuts in January 2025.
However, with downward pressures on prices due to weakened global demand and increased output from other suppliers, OPEC+ decided to gradually return 2.2 million b/d of production starting in April 2025 and to extend the remaining 3.7 million b/d cuts to the end of 2026.
Regarding the non-energy sector, Joefield said this area is expected to expand further in 2025, with positive performances expected in trade and repairs, transport and storage, manufacturing and construction. Nevertheless, he warned that frequent and/or extended industrial action by trade unions represent a major downside risk for the sector.
Pertaining to the construction industry, Joefield said this is likely to receive a boost as government moves to complete key projects in the lead-up to the general election next year.
However, Joefield also warned this is not guaranteed as public projects often encounter significant delays.
“Given the vital role public sector construction plays in lifting the entire sector, any delays in the execution of government’s capital budget could constrain the performance of the industry. For instance, government allocated approximately $6 billion dollars for capital expenditure in each of the last two fiscal years but was only able to exhaust $4.2 billion in 2023 and $4.5 billion in 2024. The unspent sums represent lost potential stimulus for construction and the wider economy,” he explained.
Economic review
In the non-energy sector, the overall performance was positive but not without challenges.
The Ministry of Finance, in its 2024 Review of the Economy (ROE), forecast the construction sector to expand by 2.3 per cent in 2024, after contracting by 3.2 per cent in 2023.
However, Joefield said judging by domestic cement sales, which are usually a good gauge of the health of the sector, an acceleration of construction activity may be required in the fourth quarter for that projection to be realised.
He also noted that during the first three quarters of 2024, domestic cement sales increased by 1.5 per cent year-on-year suggesting positive activity, but also that the sector did not gain significant momentum, following 2023’s weak performance.
The 2.9 per cent decline in cement sales that occurred in the first quarter of 2024 offset some of the impact of increased sales in the two succeeding quarters.
According to Joefield, given the link between construction sector activity and cement sales, it was no surprise that the fall in sales in the first quarter was accompanied by a rise in unemployment in construction sector to 8.7 per cent from 6.1 per cent in the previous quarter and 7.2 percent in the first quarter of 2023.
The latest available data indicate that unemployment in the sector averaged 8.6 per cent in the first half of 2024 compared to 6.7 per cent in January to June 2023, he added.
The ROE also suggested that the rate of economic expansion in the trade and repairs sector and the transport and storage sector will slow from 9.3 per cent to 3 per cent and from 6.4 per cent to 2.1 per cent, respectively.
Joefield said as it related to the trade and repairs sector, new motor vehicle sales are regularly used as a gauge of activity for at least a portion of the sector.
In the first nine months of 2024, new motor vehicle sales increased by 9.4 per cent compared to the same period a year earlier, he noted, stating that this relatively fast rate of expansion compared to the projected growth for the sector may be a sign of a mixed performance among the industries in the sector and/or a faster-than-projected expansion in the trade and repairs sector.
Given its close relationship to the trade and repair sector, it is no surprise that the transport and storage sector is also expected to record a notably slower rate of growth in 2024, he added.
Also, in the manufacturing sector, Joefield said activity is expected to expand by 2.7 per cent after a 6.1 per cent contraction in 2023.
He further noted that the food, beverages and tobacco sub-sector is predicted to post a 9.1 per cent recovery in 2024, after shrinking by 2 per cent in the previous year.
This sub-sector, Joefield said, has been the fastest growing of all manufacturing industries in recent times, expanding by 31.7 per cent in 2022, partly reflective of its recovery from the dislocations caused by the COVID-19 pandemic.
Unfortunately, he noted the manufacturing sector experienced a rise in unemployment to 4.9 per cent (average) in the first six months of 2024 from 3.5 per cent in the same period a year earlier, stating that this may be a sign of a weaker expansion than previously envisaged, at least in the first six months of the year.
Joefield further noted that with energy revenue flagging, government continued to face severe fiscal challenges in 2024.
During the fiscal year, total revenue fell 7.9 per cent to $50.4 billion, with energy revenue plunging by 48.4 per cent to $14.7 billion.
On the other hand, non-energy revenue expanded by 26 per cent to $32.7 billion, reflective of the sector’s continued growth in 2024.
He said the fall in total revenue was accompanied by a marginal decline (0.6 percent) in total expenditure to $57.5 billion.
These developments caused the fiscal deficit to expand to 3.5 per cent of GDP in the 2024 fiscal year from 1.7 per cent of GDP in 2023.
The larger deficit exerted additional upward pressure on the country’s public debt, which increased to 75.6 per cent of GDP from 72.1 per cent in the 2023 fiscal year.
Against a backdrop of falling energy revenue, the market for foreign exchange remained very tight in 2024, given continued strong demand from businesses and consumers.
