Trinidad and TobagoWT/TPR/S/151Page 1I.ECONOMIC ENVIRONMENT(1)OVERVIEW1.Trinidad and Tobago's economy has undergone a period of strong growth since its last Reviewin 1998. Over the 1999-04 period, GDP expanded at an annual average rate of 7.7%, largely onaccount of the development in the hydrocarbons sector. Per capita income has increased substantiallyduring the period under review, to over US$8,800 in 2004. As a result of the fast growth, theunemployment rate fell to 8.3% in 2004, its lowest in the past 20 years. Labour productivity has risenat a rapid pace, above real wage growth, partly reflecting the strong growth in capital-intensiveindustries.2.Trinidad and Tobago's overall fiscal situation has improved, and current expenditure has beenkept under control; the Central Government has been posting current account surpluses sinceFY 1999/00. One of the most important fiscal developments in recent years was the creation in 2000of a stabilization fund, in which the Government must deposit any additional revenues from a basepetroleum price of US$25 a barrel, to act as a cushion against any unexpected drop in petroleumprices, and strengthen the public sector savings effort.3.Growth in domestic prices has been contained although inflationary pressures have built upsince early 2004. The Trinidad and Tobago dollar is pegged de facto to the U.S. dollar, and anappreciation of the real effective exchange rate has tended to erode external competitiveness duringthe period under review. Fed by developments in the energy sector, total merchandise trade expandedrapidly, with merchandise exports growing at an annual average rate of 18.3% over 1999-03, whileimports grew at an average of 5.5% (COMTRADE data). Foreign direct investment inflows were alsosubstantial, taking the FDI stock to a level almost matching GDP.(2)MACROECONOMICDEVELOPMENTS(i)Economic structure4.During the period under review, the economy of Trinidad and Tobago has increased itsreliance in the hydrocarbons sector (petroleum, natural gas, and petrochemicals). This sector directlygenerates over one third of GDP (Table I.1) and two thirds of merchandise exports. The "goods" partof the sector accounted for over 30% of GDP in 2004, while the "services" part accounted for lessthan 4%. However, the importance of the sector goes well beyond its direct contribution to GDP. Forinstance, activities such as the production of steel and the generation of electricity are largelydependent on the hydrocarbons sector. The manufacturing sector accounted for some 7.1% of GDP in2004, while the contribution of agriculture was barely 1.3%.5.The contribution of services to GDP decreased slightly during the period under review, to60.7% in 2000, partly reflecting the increase in the share of the hydrocarbons sector. The largestcontribution to GDP stems from distribution, followed by financial services. The tourism industry isconcentrated mainly in Tobago and is not as important as in other CARICOM countries; however, itsindirect contribution to economic activity appears significant (Chapter IV(6)(vi)).