Central Bank governor Dr Alvin Hilaire is expecting the Caribbean region’s tourism-dependent countries to take a greater hit than initially forecasted by the International Monetary Fund (IMF). And the spinoff effect of to this could be a hit on T&T manufacturing sector.
“Preliminary projections suggest that these economies which were previously expected to expand by 1.1 per cent in 2020 are now set to contract by 7.5 per cent,” Hilaire said as he represented Trinidad and Tobago at the G-24 Ministers and Governors’ Virtual Meeting dealing with the impact of COVID-19 on the Caribbean on Tuesday.
Hilaire said the outturn may be even worse depending on the duration of the pandemic and future changes in behavioural patterns.
The IMF recently projected that for 2020, regional economies will contract by minus 5.2 per cent. This differs from its previous January projection of 1.6 per cent. For 2021, the IMF projects a 3.4 per cent growth.
Hilaire asserted that Caribbean countries, because of their small size and lack of economic diversification, will be disproportionately affected by COVID-19 and may experience a relatively longer period to recover.
The IMF has projected that T&T’s economy will contract by -4.5 per cent while Suriname’s growth is forecasted to be -4.9 per cent. Guyana is the exception, as it is expected to grow significantly according to Hilaire, although that economic growth is estimated to be lower than earlier projections by approximately 30 percentage points.
According to Hilaire, many of the economies are already carrying elevated debt levels and face increased downside risks stemming from the threat of an “above-average hurricane season” in the coming months. He said this is a “precarious situation” for the region and it is likely to be magnified by unfavourable credit rating movements which will make financing on the international market much more difficult to access.
Hilaire said the wide-ranging implications of the coronavirus call for a well-coordinated response from the IMF, World Bank Group, other multilateral development banks and international organisations. He urged the IMF and World Bank to be more comprehensive and proactive in their response to consider possible future outcomes for the outbreak and the likely spillover effects.
In an interview with Guardian Media, Director of Economics at the Caribbean Development Bank (CDB) Dr Justin Ram said the economic contraction with T&T’s exports will be quite dynamic. He noted that the country could “see some reduction in the value of the fuel T&T would usually export to the rest of the region”.
According to Ram, T&T’s manufacturers traditionally export a lot goods to the rest of the region and they will be negatively impacted, as these goods tend to go to the tourism sector in other parts of the Caribbean.
However, Ram said the situation could be quite dynamic because of the impact on global supply chains. Generally, he said the T&T exports could decline but there can also be a situation where more intra-regional trade is created if external supply chains are severed.
“If at some point those supply chains become a bit severed – which is quite possible – you might now find that Caribbean countries start looking more in the region to buy some additional products,” he said.
Weighing in on the matter, economist Dr Anthony Gonzales noted that the contraction would impact T&T exports as islands would begin to import what they deem essential.
While Gonzales could not project which exports would be impacted, he said Caribbean countries would begin to import only the commodities they deem essential.
According to data from the Central Bank, T&T’s total exports from 2015 to 2018 have been US$11.41 billion (TT$77.05b), US$8.3b (TT$56.06b), US$9.45b (TT$63.77b) and US$10.51b (TT$71.01) respectively. The country’s exports as of the third quarter of 2019 stood at US$6.6b or TT $44.5b.
However, the country’s intra-regional trade statistics for exports to CARICOM were not updated since 2010.
The average percentage weighting of exports to CARICOM nations amounted to 16.73 per cent from 2006 to 2010. However, this data cannot be used as a benchmark.
Gonzales also highlighted that T&T, like all the other economies, is going to suffer from a number of job losses.
“There’s a kind of multiplier effect as demand falls off for a number of things,” he said, pointing out that people will want to spend less and save more for the future and spending occurs it will be mostly for essential items.
The economist also said the number of salary relief grant applications will give preliminary insight into how many people will be affected by the possible export trough.STore