There’s some cautiously good news and then are the stubborn realities, the challenges that aren’t going anywhere.
That’s the core message of an eye-opening economic report published by Anchor Investment Management.
There are some signs of economic recovery in Bermuda — and the news that we might be inching closer to hosting the lucrative America’s Cup helps — but the way back from the recession will continue to be a slow and arduous trek.
It’s a steep hole to climb out of; the report estimates that since 2008, the Bermuda economy shrank 15.8 per cent from $5.65 billion.
There are positive signs. The tourism industry appears to have stabilized after years of problems.
But the population is shrinking. And aging. Those two things do not bode well for things like the budget deficit, health care costs and pensions.
Very slow going in choppy waters
• Our economy is showing signs of hope after 5 years of contraction. But an eye-opening report warns that a shrunken population and heavy public debt will continue to dampen the pace of recovery
Bermuda’s economic recovery is expected to be slow, with the government tightening its belt, an aging population posing all sorts of entitlement problems and a shrinking number of island residents.
This, according to an unflinching report by an investment management firm.
Anchor Investment Management has released an extensive report that analyzes an array of economic indicators, from cargo freight to cruise visitors to demographic shifts.
The report suggests the tourism industry appears to be stabilizing and has some signs of slow growth, that the decline of retail sales on the island has been stemmed, and employment and immigration policies have somewhat curbed an expat exodus.
Still, the report expects the island’s economic recovery from the recession to be slow.
“Unlike major economies where pent up demand leads to a large surge in economic activity coming out of a recession, the 7.6 per cent decline in Bermuda’s population over the last five years has significantly impaired the prospects for a substantial recovery.”
The report continues: “This, coupled with looming fiscal consolidation as the government of Bermuda looks to balance its budget, will dampen the pace of recovery.”
The decline in population, according to the report, has increased the budget deficit and has placed pressure on health care costs and social programs. However, there are some indications the population decline may be stabilizing, according to the report. Specifically, there has been a recent uptick in cargo freight trends, which should be considered as “encouraging” for the size of the island’s population.
Since 2008, the Bermuda economy has shrunk 15.8 per cent from $5.65 billion to $4.75 billion in 2013. The study anticipates the economy bottomed out in the second half of last year and that real GDP will grow 0.6 per cent in 2014 and 0.5 per cent in 2015 “despite some risks of a fiscal drag due to a reduction in government spending”.
Unemployment, according to the report, is just under 11 per cent.
“Both the traditional reinsurers and the alternative players continue to innovate and expand their business beyond traditional lines,” the report states. “We expect that the intellectual capital in the Bermuda insurance market will help create moderate market growth.”
Commercial construction could stagnate for years to come because of the current glut in commercial space. According to the report, there is little incentive to launch a major commercial project until the current 30 per cent oversupply situation is reduced.
“Over-production or (over) consumption today has to be countered with under-production at some point in the future and vice versa,” states the report. “A very tangible example of this is the huge surge in commercial real-estate that has flooded Bermuda to the point where there is some extra 600,000 square feet (over-production) that will essentially require five to six years of growth to fill and virtually no further production.”
Problems also face the home construction industry. Rents have declined as Bermuda’s population has dipped, according to the report.