Central Bank Governor Jwala Rambarran remained mum yesterday about whether Government’s declining approval ratings could affect economic confidence, but he was heartened to see a positive public perception that the local economy has improved.
Speaking at the Bank’s release of the Financial Stability Report (FSR) for December 2012, Rambarran said:
“I have no comments to make here regarding the performance of the Government, but I did note that, yes, the perception of the general public is that economic confidence has increased and the economy has improved. That is a significant improvement and I think that the more good or encouraging news that will filter into the course of this year, the perception will be boosted and that helps to bolster economic confidence."
Rambarran was referring to the Express poll, conducted by Market Facts and Opinion (MFO), that showed the population was unhappy with key aspects of the Government’s performance, including the Section 34 fiasco. Prime Minister Kamla Persad-Bissessar’s approval rating also took a hit, sliding from 54 per cent in 2011 to 38 per cent in 2012.
Regarding the economy, the poll found that almost three in ten saw an improvement—up from two in ten in 2011.
Their optimism seemed to be supported by the latest Central Bank data, which shows 1.5 per cent economic growth for the third quarter of 2012—a vast improvement over the 3.6 per cent decline in the second quarter.
Giving a preview of the Bank’s Economic Bulletin due for release at the end of the month, Dr Alvin Hilaire, chief economist and director of research at the Bank, said these third quarter results were “a glimmer of hope”, especially after several quarters of contraction in the energy sector.
The growth was not pervasive, he said, but increases in natural gas output boosted growth in the sector by 0.5 per cent. He added there were some weaknesses in oil production because of maturing oilfields and petrochemicals production was also slipping.
The energy sector had declined by 7.3 per cent in the second quarter because of ongoing maintenance work by several producers. On the non-energy side, Hilaire said there was about 2.1 per cent growth, with some growth activity seen in the construction sector.
The Bank and Rambarran maintained their “cautiously optimistic” outlook of 2.5 per cent growth for 2013.
Despite these positives, the FSR showed a slowdown in banks extending credit to businesses.
Private sector credit had increased by 4.7 per cent up to September 2012; business credit slowed to 1.6 per cent, compared to 5.0 per cent a year earlier.
“The commercial banking sector performed creditably despite prevailing economic conditions; although the system remained well-capitalised and highly liquid, overall profitability has been affected by the low interest-rate environment,” the report said.
“Weak growth domestic-wise–and in the Caribbean and internationally–has psychologically fed into the minds, I believe, of individuals and the private sector where the low confidence continues to resonate. How do we build back and regain confidence? Sometimes it is similar to ice melting–all it takes is really one step. There are a number of actions that have taken place over the last year and that will give the economy a boost, for example, the launch of the CLICO Investment Fund, which I think has put a lot of anxiety behind us,” Rambarran said.
Other highlights of the report include:
The non-banking sector has been more seriously affected by the slower pace of economic activity, with profitability dampened by the low interest rate environment;
Life insurance companies continued to exhibit positive performance in 2012, with the liability structure of the industry shifting over time towards more non-traditional business. Wealth-management products now accounted for 53 per cent of the industry, while ordinary life insurance fell to 34.4 per cent;
In the non-life sector, 2012 was underpinned by higher premium income from the property business, while motor vehicle business remained tepid. Foreign-used car sales expanded by 96.5 per cent, and the lower premiums paid for these cheaper vehicles appeared to have impacted the amount of premiums collected.
“The economy has shown a tremendous resilience in the face of the global fall-out and you have also seen our financial system remaining very resilient in the face of a harsher domestic environment. When you start to add some of those positives, there is enough to suggest our prospects are pretty favourable as we move forward for the rest of the year,” Rambarran said.