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CanadaEconomic growth continues to gain ground
Economic growth, which resumed in 2022 after six years of recession, consolidated in 2023 and was driven by the non-energy sector, which grew by 3.0%. Growth was driven by trade, manufacturing, and construction, and offset the 0.6% contraction in the energy sector. In 2024, growth is set to accelerate slightly, once again driven mainly by the non-energy sector, but also by new energy developments in the oil and natural gas hydrocarbon sectors. More specifically, the non-energy sector will be underpinned by an increase in capital expenditure, mainly linked to infrastructure projects. Privatisation programmes already underway, such as the privatisation of port operations in the capital, should also stimulate investment. The energy sector, meanwhile, will remain volatile, with the depletion of oil and gas reserves leading to underutilisation of liquefaction and petrochemical capacities and national production shortfalls. Although the licencing agreement with the Venezuelan government to operate the Dragon gas field, located in Venezuelan waters, and the transport of its gas by pipeline to the archipelago, should improve energy supplies, renewed US sanctions against Venezuela in April 2024 introduced a risk that complicates the situation. However, the risk of the US Treasury revoking the trading licence between Trinidad and Tobago and Venezuela (that expires in October 2025) that provides for a potential renegotiation of the terms of the agreement should remain low.
Economic expansion will also be fuelled by higher domestic demand, boosted initially by robust growth in public spending. This will be primarily driven by the 17% increase in the minimum wage in the FY 2024 budget. Falling unemployment (3.2% in Q3 2023 vs. 4.6% in FY 2022) and lower inflation (monthly inflation of 0.8% in March 2024) will also support private consumption. Disinflation, mainly due to the slowdown in food price rises, and persistently low interest rates, will fuel private consumption. However, an upturn in energy prices is still possible. In addition, the onset of the rainy season in the second half of the year, coupled with the return of La Niña weather patterns, should help improve drought conditions and food supplies. The accommodating monetary policy initiated at the start of the recession, with the central bank's key rate held at 3.5% since March 2020, should be maintained until the end of 2024.
Energy-dependent accounts
The current account surplus decreased in 2023 due to a slowdown in hydrocarbon exports, driven by both the decline in global prices and reduced volumes, while import demand regained strength. In 2024, it is expected to slightly decrease further. The decline in the current account surplus will be mainly attributed to reduced energy export revenues. Hydrocarbon production is unlikely to recover due to delays associated with projects such as the offshore Dragon gas field, with production not expected to begin until 2025. Discussions are under way between Shell (Loran-Manatee field), BP (Manakin-Coquina field), and the governments of Venezuela and Trinidad and Tobago for the development and exploitation of these cross-border fields, with production to be transported to Trinidad via pipelines. Additionally, repatriated profits by foreign companies in the energy sector are expected to contribute to maintaining the primary income deficit. Last, the gradual recovery of tourism will lead to a decrease in the services deficit fueled by foreign billing in hydrocarbons. Comfortable current account surpluses and foreign exchange reserves should help limit pressures on the Trinidadian dollar and its peg to the US dollar despite the interest rate differential with the Fed.
After its exceptional and slight surplus in 2022, the public balance returned to a deficit in 2023 due to the decline in energy revenues (31% of the total). In 2024, the public deficit is expected to widen. This deterioration will be smaller due to a further decrease in energy revenues than to an increase in investment spending (a 64% increase in capital and infrastructure spending) ahead of the general elections scheduled for 2025. Structural measures aim to promote the development of the non-energy sector to reduce the sensitivity of public accounts to changes in energy prices. The budget of USD 8.8 billion for the fiscal year 2023-2024 anticipates, among other things, maintaining oil prices at USD 85 per barrel and gas at USD 5 per MMBtu. Spending will mainly be allocated to education and training (14%), health (12%), national security (12%), and social development (9%). The budget includes a 17% increase in the minimum wage, with a rise from USD 17.50 to USD 20.50 per hour, and explores tax incentives and land offers to stimulate oil and gas exploration. Last, although a slight increase in the public debt ratio (82% domestic and 18% external) to GDP is expected, it will remain below the authorities' debt-to-GDP target of 75%.
Political and institutional stability despite persistent crime and ethnic tensions
The People's National Movement (PNM) again won an absolute majority in Parliament in the 2020 elections (garnering 22 seats out of 41), enabling leader Keith Rowley to retain his position as Prime Minister. The next elections are scheduled for 2025. Tensions have increased between the central government and the Tobago House of Assembly (THA), the legislative body responsible for managing the local affairs of the autonomous island of Tobago and contributing to its development. These tensions stem mainly from disagreements over the island's administrative autonomy. They have been exacerbated by the Tobago People's Party taking control of the THA with 14 out of 15 seats in the December 2021 regional elections, ending more than two decades of PNM dominance. In addition, persistent crime, notably linked to the transit of drugs through the archipelago, is a major challenge and is likely to influence the next election. The main opposition party, the United National Congress (UNC), is expected to oppose government attempts to expedite judicial proceedings and introduce legislation to clamp down on violent crime. Social tensions, exacerbated by ethnic divides between Afro-Trinidadians (the traditional PNM electorate making up 34% of the population) and Indo-Trinidadians (supporters of the center-left opposition represented by the UNC, 35%), could also escalate.
