ewart s williams : the current state of the economy and the outlook for 2012 feature address by mr ewart s williams, governor of the central bank of trinidad and tobago, at the trinidad and tobago chamber of industry and commerce luncheon meeting, port - of - spain, 30 november 2011. * * * let me thank the chamber of commerce for inviting me to speak at this luncheon session. indeed, the chamber should be complimented for promoting these quarterly sessions as a forum for the exchange of views on matters of importance to the business community. my remarks will focus on recent developments and prospects for the economy of trinidad and tobago in 2012. unfortunately, one cannot fully understand and address the challenges that we are facing unless one appreciates the momentous changes that are currently taking place in the international economy. it is no cliche that the global economy is going through a major transformation and that economies, large and small, need to adapt to survive. as we meet today, the eyes of the world are locked on europe, since the storm in the euro area is casting a long shadow over the entire global economy. essentially, we are witnessing how years of fiscal indiscipline and its consequence – the unsustainable build - up in sovereign debt – are once again threatening to push the global economy to the brink of the second major crisis in the space of five years. currently, ireland, greece, portugal and italy among others, are facing grave difficulty in servicing their sovereign debt. the crisis has spread from debt markets, to the european banks ( which are now facing funding shortfalls similar to those experienced in 2008 ), to european equity markets, and is threatening the viability of the euro itself. it has also had a significant impact on the real economy in europe. real gdp in the eurozone is projected to contract at an annualized rate of 1 per cent in the last quarter of 2011 and by a further 0. 4 per cent in the first three months of 2012. for 2012 as a whole, the eurozone economy is projected to grow by at most 0. 2 per cent and about 1 per cent in 2013. unemployment in the eurozone now averages 10. 2 per cent but has reached 22. 6 per cent and 17. 6 per cent in spain and greece, respectively. very significantly, the eu leaders are now negotiating new rules that would make fiscal discipline legally binding and move the currency block closer to a fiscal union. across the atlantic, in the us, the situation

fiscal stimulus spending unwound. the exchange rate was working to offset a good deal of this expansionary impact, by restraining some parts of the economy exposed to international trade but not exposed to mining. nonetheless, given the size of the terms of trade rise, and the fact that the economy started from a position of reasonably low unemployment, it was thought that underlying inflation was more likely to start to go up than to keep falling. on the evidence we have so far, that ’ s what seems to have been happening. faced with that outlook, the board judged that it was appropriate for monetary policy to exert a degree of restraint. as of the end of last year, the board ’ s view was that it had reached that position. we believed that we were therefore in a position of being able to maintain a steady setting for a while. the post - board statements i issued each month at successive meetings said that the board viewed the stance of monetary policy as remaining appropriate for the outlook. of course, there are always uncertainties surrounding forecasts, and the bank ’ s publications have been careful to articulate possible risks that we could identify – including things such as the possibility of a serious worsening of the situation in international financial markets, driven by sovereign debt concerns. most of these risks do not come to pass, and if they do eventuate they don ’ t necessarily unfold as we had imagined they might. still, the bank makes considerable efforts to think about how things could turn out differently to the central forecast. by the time of the may board meeting, there was evidence that the pace of underlying inflation had started to pick up. i myself felt that the board was still well placed to sit still at that time. we had already put in place a response in advance of the expected pick - up in inflation and it is not necessarily always wise to respond to one high ( or low ) figure. nonetheless, the updated forecasts carried a fairly clear message : policy would probably need to be tightened further, at some point, if things continued to evolve as expected. the bank said that – indeed there was no other credible thing we could have said. in the ensuing months, little has changed about the outlook for resources sector investment. more large projects have been approved and the pipeline of future investment looks very large. on all the available information, resources sector investment will probably rise by another 2 percentage points or more of annual gdp over the next couple of years. prices for important commodities remain high and