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Is Bermuda in a depression?

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The economy is expected to shrink further this year as the Island continues to suffer through what some are saying is really a depression.

Predicted further negative growth in 2013 means Bermuda is likely to endure a fifth year of recession.

Economists we spoke to said it could bottom out this year depending on policies that are put in place by the new OBA Government plus other factors.

But former Premier Sir John Swan said yesterday he believed the Island will not see a turnaround and will not be able to look after its people without taking “game-changing” steps to generate economic activity.

“By definition ... we have slipped into depression, we just don’t like to use the word depression,” Sir John said.

Peter Everson, Chamber of Commerce economics committee head, said: “There are two widely used tests of a depression: a) A decline in real GDP of more than ten percent; or b) A recession lasting more than 2 years. Bermuda’s GDP figures are well on their way towards meeting test (a) and have already met test (b).”

The Bermuda economy is still shrinking, he said. And whether we call it a recession or depression, it doesn’t change the impact of the decline.

An Anchor Investment report in December stated that its 2012 GDP growth forecast was reduced to -1.4 percent from -0.6 percent and it lowered its 2013 growth estimate from 0.4 percent to -0.2%. Officially, the National Economic Report of 2011 said the Ministry of Finance estimates GDP will decline one to two percent in 2012.

“For calendar 2013 to have an overall growth means that the recovery has to start this year and to have enough strength to overcome the decline in the early part of the year,” Mr Everson said yesterday.

“In my judgment this is unlikely. We need to trade more with foreigners. It takes time to find these foreigners and then to persuade them to trade with us, ie part with their money.

“All this can start now but it may well be the autumn before this translates into actual hard dollars hitting Bermuda bank accounts which is the only scorecard that counts.”

With Bermuda stressed by debt and high unemployment and global slowdowns, Sir John said: “What we’ve got to do is determine what is going to make Bermuda attractive again and put policies out there to the public — these policies have to be defined, they can’t just be some flaky undefined positions — so that people will start to buy back into Bermuda.”

Some of the policies may seem alien and may need a buy-in by Bermudians, he said.

Sir John said the top changes Bermuda needs to make are: opening up and changing the system on work permits, term limits and residency; expanding the city limits and changing the status of 60/40 to generate economic activity and jobs in Bermuda again amid a climate of dying local businesses; and carrying out tourism initiatives such as the Hamilton and St George’s waterfronts.

“Bermuda has to go through significant change, if it doesn’t then we will not be able to service our debt, private and public, and we will not be able to keep our people employed, and get our places back rented again,” Sir John said.

“There will be a lot of negative things. Scholarships will dry up, charitable giving is already drying up. We need to move and move pretty fast.”

He added: “If we start heading in the right direction this year we could start to see some results ... and there will be some hope.”

While the US years ago emerged from its 2007 to 2009 ‘great recession’, economists continue to reduce growth estimates for Bermuda, whose recession started in 2009 with an 8.1 percent fall in GDP.

On Monday in this newspaper financial columnist and Anchor Investment Management CFO Nathan Kowalski wrote: “The country’s 2011 GDP officially came in at negative 2.8 percent and we are forecasting that Bermuda’s economy slipped for a fourth year in a row in 2012, falling an additional 1.4 percent. We expect that once the final 2012 numbers are released, we will see continued weakness in construction, softness in retail and wholesale trade and a dip in hotel and restaurant growth.”

Mr Everson added: “The precondition for an economy to start to pull out of a recession is for it to arrest the rate of decline.

“We are still looking for this. After that, it depends on how strong the recovery is because a robust recovery will show up earlier than an anaemic one. It will depend on both internal and external factors.

“Government policies will influence the level of confidence within the domestic economy. The strength of the international economies will have some impact on Bermuda’s international trade flows but so too will the degree of competition from other countries.”

He added, that he felt if the new Government does make strides in freeing the economy from policies that have been forcing it to shrink then 2013 will see stabilisation and growth coming through in the first half of 2014.

Former Premier Paula Cox had said at a business forum last year that the Island’s “economic recovery has begun” amid modest signs of growth in the business sector, including insurer registrations.

Former Premier Sir John Swan
Anchor Investment CFO Nathan Kowalski

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Published January 09, 2013 at 8:00 am (Updated January 08, 2013 at 6:47 pm)

Is Bermuda in a depression?

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