Created: Nov 28, 2022 10:06 AM
Economist Craig Simmons (Photograph by Akil Simmons)
Leading analysts have painted a bleak picture of Bermuda’s economic future in the wake of disappointing financial statistics.
Craig Simmons, a Bermuda College lecturer, and Robert Stubbs, a researcher for the think-tank SEED, said that a lack of investment in the economy indicated that there would be little growth in the foreseeable future.
Mr Simmons and Mr Stubbs spoke out after the release last week of Gross Domestic Product figures for the second quarter of the year.
On Thursday, Jason Hayward, the economy minister, said that although it contracted by 1.7 per cent in the three months between April and June, Bermuda’s economy was “trending positively”.
But Mr Simmons pointed out that the current lack of investment, which dropped by 0.3 per cent in the quarter, showed that entrepreneurs and other drivers of the economy had little faith in government policy — with the risk that the economy will remain stagnant.
Bermuda’s economy peaked in 2008 when GDP for the year was $7.87 billion. By 2019, before the pandemic, it was $6.45 billion or 18 per cent smaller than 11 years earlier. In 2021, the last year for which full-year figures are available, it was $6.33 billion, or 19.5 per cent smaller than in 2008.
Describing the island’s economic performance as “lacklustre”, Mr Simmons said that construction investment — which fell by 4.4 per cent — typically made up half of investment totals.
He said: “Investment spending matters because it determines a country’s growth potential. Too little and growth prospects fade because we haven’t channelled enough savings towards maintaining, replacing and upgrading our machinery and equipment.
“Investment spending of $1 billion is the smallest and most erratic component of GDP. The erratic nature of investment spending lay in the expectations of entrepreneurs.
“Expectations drive investment spending. If entrepreneurs and property developers perceive a rosy future, they are more likely to buy the machinery and equipment necessary to realise their expectations. Fear of recession and uncertainty over government policies work in the opposite direction.”
OBA: Economy is heading in the wrong direction
The opposition One Bermuda Alliance has poured scorn on the Government’s claims that the economy was “trending upwards”.
Jarion Richardson, the deputy leader of the OBA, also dismissed the Government’s Economic Recovery Plan, claiming that its initiatives were unlikely to give the economy a boost.
Earlier this month, The Royal Gazette revealed that plans to set up a vertical farming industry on the island – one of the cornerstones of the ERP – had floundered.
Other initiatives, such as the creation of a casino industry and a fish processing plant, have yet to take off.
Last night Mr Richardson said: “Our economy is heading in the wrong direction, demonstrating that the Government is out of touch. The use of carefully crafted economic data does no one any favours – a turkey still costs $188.
“Vertical farming, the arbitration centre and casinos are not going to recover this economy. The Government’s economic plan needs to treat the disease and not the symptoms. It’s the infection, not the cough, that we need to focus on.
“We clearly need more people in Bermuda to spread costs and increase on-island consumption. We need to control our spending, and it looks as if we’re doing the exact opposite. We need more inward investment. What we don’t need is more wordplay, more special-interests projects, and less governance over spending.”
Mr Stubbs was even more damning in his analysis of the figures, describing Bermuda’s economic recovery as “very weak indeed” — in part because tourism was struggling to bounce back to pre-pandemic levels.
Mr Stubbs said that capital spending had “collapsed” compared with 2019 figures, while poor export numbers were “a drag” on the island’s economic performance.
Taking statistics for both the first and second quarters into consideration, Mr Stubbs said: “Overall, the figures suggest a very weak recovery with the components of GDP not reflecting well for the recovery’s longer-term prospects and conflicting with the Government’s stated objectives of stimulating strong investment spending driven by a meaningful Economic Recovery Plan.
“Capital investment spending has collapsed by almost a third from its levels in the first half of 2019 and is by far and away the weakest sector of the economy. Even more alarmingly, capital investment spending is still the weakest sector of the economy and is the only sector that continues to decline.
“Our GDP growth of only 1.4 per cent in the first half of 2022 from year-ago levels is very weak indeed considering we are supposed to be in Covid's recovery phase.“
According to SEED statistics, the number of Bermudians in work has dipped by 6 per cent since 2019, with jobs in the hotel, restaurant and bar sector down a massive 34 per cent.
Mr Stubbs said: “The weakness is being driven by our continued decline in capital investment spending and weak net exports. If Bermuda were experiencing a similarly strong rebound in tourism as many of our competitors in the Caribbean, we would see higher export growth and our net export position would not be such a drag on GDP.
“Regrettably, the data complies with what we’re seeing elsewhere as the failure to reopen the Fairmont Southampton Princess has had a crippling impact on both our capital investment spending and our tourism arrivals.
“Our 2021 employment data broken down by industry reflects the full extent of the weakness in our tourism industry. Comparisons with Cayman continue to disappoint as employment of local Caymanians now exceeds their pre-pandemic levels while Bermudian employment continues to suffer from our exceedingly weak recovery.”
At a press conference on Thursday, Mr Hayward said that the Government was “doing things” to mitigate the impact of rising inflation and a possible recession.
He said: “We will continue to execute on our economic growth and development strategy that is ensuring that we continue to have business retention and expansion in our local economy, ensure we market Bermuda as a reputable business jurisdiction so that we can continue to attract businesses but assist businesses on island to continue to thrive.”
Pressed for a progress report on the 31 “urgent” initiatives in the Economic Recovery Plan — devised by the Government in the summer of 2020 to kick-start the economy after the pandemic — Mr Hayward repeatedly failed to give any answers.
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