President of the T&T Manufacturers Association
Karen de Montbrun, left, with Finance Minister Karen Nunez-Tesheira
at the La Boucan Room of the Hilton Trinidad and Conference
Centre on Tuesday.
Its regarded as a truism in economic circlesthe
saying that when America sneezes, the rest of the world
catches a cold.
Minister of Finance Karen Nunez-Tesheira says this is no
longer the case.
Addressing a seminar US RecessionImplications
for T&Ts Economy last Tuesday, Nunez-Tesheira
said this might have been true some ten years ago, but the
burgeoning economies of India and China have dramatically
changed the nature of the global economy.
Although the US is responsible for 27 per cent of the global
economy, Nunez-Tesheira said, A case may certainly
be made that the global economy is less vulnerable today
to changes in the US economy than it was a decade ago. The
World Bank and other financial analysts opine that slow
growth in the US and other high income countries will lead
to weaker but still solid developing country growth even
if there is a recession in the US.
Indeed, Nunez-Tesheira said that, a slowdown in advanced
economies may well serve to moderate some of the global
economic tensions particularly those related to rising commodity
prices and global imbalances.
Likewise, she said the local economy is far more resilient
and better able to withstand external shocks than at any
other time in the countrys history.
Nunez-Tesheira said that the local economy had more than
doubled in size over the last five years from about $55
billion in 2001 to about $132 billion last year. She said
external public sector debt has declined and the countrys
external current account surplus averaged 17 per cent of
gross domestic product (GDP) over 2002 to 2007, and gross
official reserveswhich represented six months of import
cover in 2002now represented ten months of import
However, she said, The Government recognises that
a sustainable slowdown in the US economy may have an adverse
impact on bilateral trade and investment flows for T&T
and may indirectly impact on our economy through its effects
on other Caricom countries.
She said that the US is T&Ts largest trading partner,
accounting for 60 per cent of the countrys total exports
and 25 per cent of its imports.
She added that the top five exports to the US between 2005-2007
included liquefied natural gas (LNG), crude petroleum, ammonia
and strong energy demand even in the face of a slowing US
economy and rising commodity prices suggests that impacts
originating from these sources are not likely to be overly
onerous in the short term.
And she noted that while the energy sector has been the
driver of the T&T economy, many of the other sectors
have performed well and exhibited robust growth in the recent
The seminar at which Nunez-Tesheira spoke was organised
by the T&T Manufacturers Association (TTMA) in
conjunction with RBTT Bank and was held at the Hilton Trinidad
and Conference Centre, St Anns.
In her welcome and opening remarks, TTMA president Karen
de Montbrun said trade would be affected by a recession
in the US. She said a sustained slowdown in the US could
cause a fall in demand for this countrys exports and
this coupled with imported inflation could result in an
expansion of the trade deficit for the non-energy sector,
particularly the manufacturing sector.
Observing that the region is the traditional market for
T&T exporters, de Montbrun said Caricom countries would
suffer and a reduction in Caricoms real effective
purchasing power could implicitly lead to a fall in demand
for T&Ts goods supplied to Caricom.
Economist and consultant Dr Trevor Farrell said that in
the short termbetween one to two yearsthere
will be little impact on the overall economy
from a recession in the US. However, he said that in the
short term individual firms and households can experience
significant losses as a result of a US recession.
He said his view was based on history and analysis.
Dr Farrell said there had been ten recessions in the US
since 1945 and there had been no correlation between recessions
in the US and economic performance in the T&T economy.
He added that during one such recessionbetween 1973-1975
the longest of the post-war recessions in the USthe
T&T economy, along with those of oil exporting countries,
experienced a boom.
Adding that the past is a reasonably good guide to what
is likely to happen in the future, Dr Farrell said, History
often, but not always, repeats itself.
He said the medium termthree to five yearscould
be a different story.
He defined a recession as two successive quarters of negative
growth, characterised by rising unemployment, falling output,
falling demand and decreases in capital expenditure all
in a vicious downward spiral.
He said most recessions in the US last a few months, although
the longer term effects can last for years.
Dr Farrell said there are three distinct economies within
the T&T. He said one is the energy economy and, although
it is the motor of the whole economy, it has very little
to do with the domestic economy.
He said the second is the domestic economy which is where
the countrys 15,000 businesses are involved, and the
third is the regional economy.
He said the business sector participates in the domestic
sector and some sectors of the regional economy. Dr Farrell
said the regional economy is driven by exports to Caribbean
Community (Caricom) countries and, over the last ten years,
by direct and portfolio investment.
He said the energy economy is driven by price, production,
volume reserves, tax yields and comparative costs. He said
of these factors, developments in the US economy are likely
to effect price.
He said it was possible that a significant fall in demand
for oil could see a reduction in prices for energy products
and affect the mechanism.
However, he said that was not likely to happen in the short
term because it is not easy to switch from oil and gas to
another energy source in the short term.
Economist Mary King doubted that there would be a recession
in the US. She said while the subprime mortgage crisis had
affected international banks which were holding bonds and
weakened the US dollar, the inherent productive capacity
of the US economy had not been damaged.
King, the principal of her own firm Mary King and Associates,
said the US is not facing a recession or economic collapse
but is restructuring its economy.
She said it was the prevailing view among the major US investment
banks that a recession was not likely. She cited Bear Stearns
as concluding that because of regulatory intervention by
the US federal Reserve and a heavy monetary stimulus from
the Government, the risk of a recession in the US was low.
She said Bear Sterns opinion was that the US economy
had suffered a second quarter slowdown and had skirted a
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