By Rory Rostant Friday, April 24 2009

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Central Bank Governor Ewart Williams yesterday painted a grim picture of the economy stressing that all indicators point to a deceleration, with zero to one percent growth in gross domestic product (GDP) expected for 2009.

With such stagnation, Williams said the country can expect more job loss and lay-offs and revealed that unemployment figures moved from around four and a half percent in 2008 to between six and seven percent in 2009. Preliminary statistics from the Industrial Court indicate firms have filed a total of 1,089 retrenchment notices, it was noted. Faced with slow growth, the prospect of rising unemployment and a budget deficit of one percent of GDP, Williams said a stimulus package might be needed to bring the economy out of the economic doldrums.

With food inflation still in the 25 to 30 percent zone, headline inflation at 11.7 percent, down from a high of 15.4 percent in October 2008, core inflation “relatively sticky” at around five percent and energy prices slipping, Williams said the deceleration of the economy was happening faster than expected. “Indicators show deceleration taking place sharply,” he said at the launch of the Monetary Policy Report (MPR), which is released in April and November, at the Central Bank auditorium, Port-of-Spain.

In the construction sector, production and sale of cement declined on average by 13.2 percent and 18.7 percent respectively during the first three months of 2009. The retail sales index, which is a gauge of consumer demand, fell to 7.2 percent (year-on-year) in the fourth quarter of 2008 from 22.4 percent in the corresponding period in 2007.

Sales of textile and wearing apparel as well as construction and hardware material also displayed notable declines, according to the MPR.

Even with reduced demand, inflation remains “sticky and intractable”, Williams said, of the 11.7 percent inflation mark.

In addition, producer prices to December 2008 increased by 10.5 percent, according to the Summary of Economic Indicator, a new publication by the Central Bank which also gave the bleak picture of crude oil prices declining from a peak of US$145 to about US$48 in March 2009 and more telling, natural gas prices which peaked at around US$13 mmbtu in July 2008, declining to around US$3.96 in March 2009. Natural gas production declined to 48,576 cubic metres in 2008, a decline of one percent from the corresponding period in 2007. Williams said GDP growth was projected to slow from an estimated 3.5 percent in 2008 to around two percent in 2009 but the Central Bank has since revised this to zero to one percent growth in 2009.

The economic picture was dire, he said, pointing to a decline in energy products and reduced production, decline in construction, a 40 percent reduction in car sales and impending job losses.

For 2009, Williams described the economy as reaching “stagnation” point and said he was worried the decline in commodity prices was not translating into lower food prices for the consumer.

On Government’s budget for this year, he warned that any increase in expenditure must be done with fiscal discipline and said poverty alleviation should be a priority.

For the short term, he said, “expenditure needed to be reduced in line with the trajectory of energy revenues.” “Any fiscal stimulus must be matched by a commitment to fiscal discipline,” he said.