Economic dip seen as temporary
Bermuda's economy slipped back into recession — at least by one widely used definition — in the last quarter of last year, according to figures released by the Department of Statistics yesterday.
In the fourth quarter of 2016, gross domestic product fell 2.4 per cent after inflation compared to the same period a year earlier, following a 1.8 per cent contraction in last year's third quarter.
Recession is often defined as two consecutive quarters of negative real GDP growth. Bermuda emerged from a six-year recession when it returned to growth in 2015.
However, Ministry of Finance forecasters expect last year's second-half dip to be short-lived. In the National Economic Report published in February, they predicted economic output would grow by between 1.5 and 2 per cent for 2017.
Analysts from Standard and Poor's Ratings Services, in their commentary on the decision to affirm the island's A+ credit rating last week, also predicted real GDP growth of 1 per cent this year.
And their views were backed up by economic expert Peter Everson, who sees multiple growth signals this year.
Yesterday's release said GDP in the fourth quarter of last year totalled $1,442.9 million, up 0.2 per cent from the same period in 2015 — or down 2.4 per cent after inflation.
Gross capital formation, defined as investment in fixed assets for use in production, was up by $26.8 million. This reflected higher investment in assets such as telecommunications equipment and industrial machinery.
Household consumption rose slightly to $817.8 million year-over-year, reflecting increased expenditure on air transport and catering services. However, after inflation households spent 1 per cent less.
Government consumption fell to $237 million, down 1.7 per cent from a year earlier, or down 3.3 per cent after inflation, due mostly to lower public expenditure on goods and services.
The island's net trade surplus fell by $27.5 million, or 12.5 per cent, primarily because of a $37.5 million increase in payments for imported goods and services. Although such increasing demand indicates strength in an economy, the growth in the value of imports has a downward impact on GDP.
And an increase in spending by tourists helped to boost the island's receipts from the export of goods and services by more than $10 million.
Mr Everson, a close observer of the island's economy, said insurance mergers appeared to have had a dampening effect on GDP, particularly in the impact on employment income. He used the XL-Catlin combination as an example.
“Towards the end of 2015 and into the first part of 2016, some well-paid people were being laid off and were receiving severance payments,” Mr Everson said.
These one-off payments helped to temporarily increase the island's employment income, which in later quarters fell off because of the loss of those positions.
He backed this up with government statistics that showed international business employment income rose year-over-year in the fourth quarter of 2015 and through the first half of 2016.
However, it slid 5.5 per cent in the third quarter of 2016 and 2.9 per cent in the fourth quarter, reflecting the job losses' impact.
He was confident of a return to economic growth this year, driven by factors including major construction projects and the ongoing presence through the end of June of an increasing number of people associated with the America's Cup, accompanied by a marked improvement in tourism.
“Bermuda's GDP is somewhere between $5.5 billion and $6 billion, so 1 per cent of that is $55 million to $60 million,” Mr Everson said.
“My feeling is that is the sort of pace of investment that will be going on at Caroline Bay, also at the airport and at the new hotel in St George's, so between them they could lift GDP by about 3 per cent.
“The America's Cup effect will be strong — from Wedco to mom-and-pop developments, there are a lot of things going on. There are people doing things like refurbishing an old child's bedroom to rent out on Airbnb, or giving their place a coat of paint. All this incremental activity will help to lift GDP.”
Mr Everson said GDP was not a perfect measure of the island's economic health. The most important things for the island were the number of people working and the number of people living here, he said.
In its ratings commentary last week, Standard and Poor's was modestly optimistic, predicting real GDP growth of around 1 per cent for 2017.
“We believe that tourism and construction will be important contributors to economic growth alongside the international financial services sector,” S&P stated.
“Major hotel construction projects will continue or begin and the airport will begin reconstruction. Despite this, we continue to view Bermuda as having below-average economic growth prospects compared with peers with similar high levels of GDP per capita.”