Weak growth expected for less bad’ economy
Bermuda’s struggling economy is expected grow this year for the first time in five years, according to forecasts from a prestige UK magazine.
The Economist predictions for the coming year said the Island should expect gross domestic product (GDP) growth of less than one percent.
But the forecast still puts Bermuda in the bottom ten for growth — just ahead of the conflict-torn Central African Republic and the ailing European economy of Italy, both of which are forecast to have GDP growth of less than one percent.
Finance Minister Bob Richards — who is set to present his second Budget to the House of Assembly next month — said he was unable to comment in detail due to the imminent presentation of the annual spending forecast.
But he added: “One thing I can say, though, is that, having just spent some time in the Caribbean, I can tell you a lot of the growth down there is what I call phoney growth, because a lot of it is fuelled by government debt and a lot of those islands have huge government debt — much larger than Bermuda.
“A simple graph of projected growth doesn’t tell the story. It doesn’t talk about standard of living, just year by year change.”
Mr Richards said: “I can’t say much more than that because it’s a sensitive time — but there are other factors at play here.”
But he added: “When you’re borrowing billions of dollars to spend in your country, you show some growth — but in a couple of years from now, you might have the International Monetary Fund in your country because no one will lend you any money.”
The rest of The Economist bottom ten countries for GDP growth — in descending order — were Greece, Barbados, Slovenia, Venezuela, Puerto Rico, Libya and Cyprus, all of which are expected to register a drop in GDP.
The Economist top ten were Mongolia, with GDP growth of more than 15 percent, followed by Macau, Sierra Leone, Timor-Leste, Turkmenistan, Bhutan, Laos, the Congo, Iraq and Tanzania.
Mr Richards was backed by economics experts Craig Simmons and Peter Everson.
Mr Simmons, a senior lecturer in economics at Bermuda College and a former professor at the US-based Webster University, said: “I’m delighted that The Economist newspaper’s forecasters believe that the Island will grow nominally next year.”
But Mr Simmons cautioned that the low growth prediction meant that the economy was getting “less bad or more technically the economy has passed a downward inflection point”.
And he said: “This does not mean that a growing economy is around the corner.”
Mr Simmons that his “less bad” rating was based on factors like a smaller declines in retail sales for November last year and a smaller fall in the number of visitor arrivals and their spending.
He added that “robust foreign currency earnings” since the recession bit in 2008, as signalled by the strength of the Island’s current account surplus of the balance of payments to the third quarter of 2013 and a slower rate of decline in air arrivals also had to be factored in.
But Mr Simmons said: “At the same time, there are forces inhibiting recovery — Government is exiting from a policy of mild stimulus to one of debt reduction and lending by banks continues to decline, which in turn limits the business and construction sectors’ ability to generate job opportunities.”
He added: “The association of growth rates between Bermuda and the Central African Republic is bogus — most of the economies listed have very little in common with Bermuda. Barbados is the exception.”
And he said: “High growth rates in Sierra Leone, Iraq, or Tanzania says nothing about the state of well-being of the residents of those countries.
“They are instead an indication of movement from a very low starting point.”
Mr Everson, who sits on the Bermuda Chamber of Commerce economics committee, added: “The more interesting thing is that they give it a positive number rather than the negative numbers we have had for the last five years.”
He added: “It is pretty much guess work at this stage — if several new hotel developments or redevelopments all commence during 2014, then we will have a greater degree of confidence for 2015.”
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