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budget special 2015 Guardian www.guardian.co.tt Tuesday, September 2, 2014
Should current oil "boom prices" remain stable at
2013 rates or fall, the T&T economy will contract
the most in Latin America and the Caribbean (LAC),
according to an International Monetary Fund working paper
(WP/14/154) released in August.
"After the Boom--Commodity Prices and Economic Growth
in Latin America and the Caribbean," by IMF economist
Bertrand Gruss was authorised for distribution in August by
chief of Regional Studies in the Southern Hemisphere Depart-
ment, Dora Iakova.
The author of the working paper used a "multivariate analysis
of the relationship between commodity prices and output
growth" as based on a variant of the global vector auto-regres-
sion (GVAR) model.
The version of the GVAR in the working paper covered 30
economies, five of which (France, Germany, Italy, Spain, the
United Kingdom) were modeled as a group. The other 25
economies included 13 LAC countries, covering the 12 largest
commodity exporters (Argentina, Bolivia, Brazil, Chile, Colom-
bia, Ecuador, Honduras, Paraguay, Peru, T&T, Uruguay,
Venezuela) and Mexico; other commodity exporters outside
the region (Australia, Indonesia, Iran, Nigeria, Norway, Qatar,
Saudi Arabia); and other large economies (Canada, China,
India, Japan, the United States). Altogether these economies
account for more than 80 per cent of world GDP, the IMF
working paper said.
Before giving his "conditional growth forecast results,"
Bertrand asked: "What would these commodity price scenarios
imply for economic growth in LAC commodity exporters?
The model forecast output growth over 2014--2019 condition
on on certain assumed paths for the country-specific com-
modity prices, which in T&T's case was the price of oil. These
paths, in turn, correspond to three alternative scenarios for
individual commodity prices.
The first scenario (called stable prices) is a key benchmark
aimed at answering what could happen to economic growth
in LAC if commodity prices were to remain high but stop
increasing. It assumes that commodity prices in current US
dollars remain constant over 2014--2019 at their 2013 average
In the second scenario (called futures) it is assumed that
spot commodity prices evolve in line with the market price
of commodity futures (prevailing at end-February 2014).
"Commodity futures suggest that spot prices for broad com-
modity aggregates will remain stable or decrease moderately
over the coming years," the IMF working paper said.
The third scenario (called adverse) preserves the relative
price variations implied by the futures scenario but assumes
lower price growth, such that all commodity prices under the
adverse scenario are 10 per cent below those implied by the
futures scenario by the end of the forecast horizon.
The main result from the conditional forecast exercise is
that even if commodity prices were to remain stable at the
relatively high levels attained in 2013, as in the stable prices
scenario, output growth in LAC commodity exporters would
be substantially lower than in recent years. On average, output
growth would be about 0.8 percentage points lower than in
2012--13 and 1.8 percentage points lower than during the com-
In his results, the IMF economist found T&T's slowdown
projected to be the worst. He said: "The slowdown vis-à-vis
the boom period would be quite generalized (Figure 11 attached).
In all countries except Paraguay, average projected growth
over 2014--2019 is lower than in 2003--2011. The projected
slowdown is particularly large in the case of T&T and, to a
somewhat lesser extent, in the cases of Argentina and
Excluding these four cases, he said, the slowdown under
the stable prices scenario in the other eight countries ranges
from 0.8 percentage points in the case of Chile to about 2
percentage points in the case of Peru. In all eight cases, the
conditional projections under stable prices scenario is within
about 0.5 of a percentage point from the model's unconditional
growth forecast (except for Uruguay, were the unconditional
growth forecast is 1.2 per cent lower). Although the region
slowed down considerably in 2012--2013 vis-à-vis the boom
years, the model still predicts a further slowdown in 2014--
2019 for all counties except Brazil and Paraguay.
In a footnote in the paper, the author wrote: "T&T's economy
has been recently subject to strong output swings related to
supply shocks in the energy sector (maintenance-related out-
ages), which could in part explain the pessimistic forecasts
from the model."
IMF Working Paper:
T&T economy to contract
if oil prices stay same or fall
TTO: Trinidad and Tobago
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