WEDNESDAY, SEPTEMBER 28: Another two years of heavy job losses are in prospect as Bermuda labours under the weight of more than $5billion in private-sector debt, economists have warned.
The enormous debt mountain — which now equals the island’s GDP according to figures from the Bermuda Monetary Authority — is hampering prospects of a recovery from the recession.
And while most commentators have focused on Government debt, Craig Simmons, economics lecturer at Bermuda College, warns that excessive borrowing by businesses is having a greater influence on jobs.
He said: “Government debt is a pittance compared to what the private sector is carrying. That debt has far reaching implications but to date the conversation has been all about public debt perhaps that is a distraction we have provided for ourselves.”
Peter Everson, chair of the Chamber of Commerce’s economic division, said the figure of 1,400 job losses in 2010 could be matched in 2011.
And he warned the trend was likely to continue into 2012.
Bacardi International announced 13 new job-cuts this week. An informal list of redundancies announced this year, compiled by the Bermuda Sun, puts the tally of jobs lost in 2011 at 285.
That figure, says Mr Everson, is likely to be the tip of the iceberg as most job losses are not announced in the media.
Businesses are unlikely to invest in new employees until they have their debt situation under control, both Mr Everson and Mr Simmons told the Bermuda Sun this week.
Private-sector debt — everything from your $100 credit card bill to loans taken on by Bermuda’s biggest companies — has almost doubled since 2004.
The ‘new reality’ of smaller profits for businesses and decreased wealth and job security for individuals means that both are now focusing on trimming debt rather than spending money.
That means few new jobs or major cash investments from businesses and less spending from consumers.
Mr Simmons warned: “The labour force was around 40,000 when the recession hit and it has some way to go before it bottoms out.
“Job losses are going to continue for quite some time.
“There is still a bit of deleveraging that has got to play itself out.
“People are not going to be taking on much new debt, they are thinking about fixing their existing debt problem.”
The 2010 Employment Briefs, released last month, showed 1,400 job losses for that year. That figure includes Bermudians and guest workers whose permits were not renewed.
There were 38,097 total jobs in Bermuda in 2010 compared with 40,213 in 2008.
Mr Everson believes job losses to permit holders are equally important because they decrease the population with a damaging effect on local businesses.
He said the moratorium on work permits for landscape gardeners and other professions had been counter-productive, exacerbating the declining number of jobs.
“When you add in companies like ACE, AIG and HSBC all shrinking white collar jobs you can easily see where 2,000 jobs will disappear from the 2010 survey number,” he said.
The situation in Bermuda mirrors what happened across the western world during the boom years leading up to the 2008 crash.
“Those who were not enjoying the fruits of the boom were given copious amounts of cheap credit card debt; instalment debt and of course mortgages that they had no hope of ever paying off.
“In Bermuda we avoided the worst of these excesses but from 2004 to 2010 people and businesses increased their borrowings from a manageable $2,865,000,000 to a far more onerous $5,200,000,000.
“Even though it was a time of great increases in prosperity, collectively we consumed more than we earned and so we now have the bills to pay.
“We have less income and so it is now even more painful to make these payments.
“Therefore, yes it will influence our economy for years to come, as there is less money to be spent on everything else.
“It is no surprise, for example, that new car sales are tanking.”