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At last, green shoots in our dry economy

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At long last, the Bermuda economy is showing signs of thawing from the permafrost of a six-year recession. Last week's gross domestic product (GDP) statistics for the first quarter showed the economy grew by an inflation-adjusted 2.2 per cent year over year in the January-through-March period. While one swallow does not a summer make, this is encouraging news. The question now is whether the growth in the first three months of the year was just a blip or the start of a new growth trend.

It was also a pleasant surprise for the Bermuda Government to provide quarterly economic statistics that are just over four months old, rather than the annual GDP figure, nearly a year out of date, to which we have become accustomed. Hopefully, up-to-date jobs numbers will be next. This is a positive development for local business leaders and prospective investors from overseas who need to gauge what is happening — rather than what was — in order to make informed investment decisions. However, the fact that this was the strongest growth seen in a long time will get the political cynics questioning the timing of the first quarterly release.

There are other indicators out there that suggest that this may be more than a false dawn. Retail sales, once described by Finance Minister Bob Richards as “telling a bigger story” about the Bermuda economy than other economic statistics, have shown consistent growth over the past six months, albeit rising from a pitifully low level.

One way of measuring consumer confidence is gauging the willingness to make big-ticket purchases, such as a car or a house. On this score, confidence appears to be rising. In nine of the past 12 months for which we have information, vehicle sales have risen by a double-digit percentage from the same month a year before.

In the real-estate market, which has taken a hammering during the downturn, driven by the exodus of thousands of expatriate workers leaving a glut of vacant residential units and offices, there appears to be improvement too. For the past couple of years, this newspaper has reported the comments of bank executives about a pipeline of qualified borrowers who had signed up for property loans, but who were waiting with great patience for the right home at the right price to come on the market. It seems that this year some of those people have decided to pull the trigger. Coldwell Banker Bermuda Realty reported seeing a 44 per cent increase in the number of real-estate transactions in the first six months, although without a meaningful increase in dollar volume.

The numbers may be indicating that those in work feel sufficiently secure in their jobs to loosen the purse strings a tad after years of self-imposed domestic austerity. But we cannot expect to see strong and consistent growth until the 9 per cent unemployed (according to those year-old job statistics) start to return to the workforce. The paycheques of new hires circulating through the community could feed a virtuous circle of spending uptick, leading to extra demand, sparking extra hiring, leading to more spending.

Where might the jobs appear? Looking ahead, the greatest opportunity for new employment may come in the most beaten-down sectors, namely construction and hospitality. Construction has been brutally hit by the recession. The $116 million value of building work put in place last year was down nearly 40 per cent from just two years earlier.

Two huge resort projects, one on the site of the former Club Med in St George's and the other at Morgan's Point, appear poised to make the transition from drawing board to construction site. Once work on those two gets under way, construction could switch from being an economic laggard to a locomotive.

Bermudians will be wary of believing a new hotel will ever become reality, given the years of disappointments, but there has been real progress. The St George's Resort Act 2015, which will create the master agreement giving the lease for the St George's site to the developer Desarrollos Group and which will be debated in a special session of the House of Assembly next week, will give the green light for ground-breaking in the East End. Meanwhile realtors have set up an office to sell luxury condominiums that feature in the first phase of the Morgan's Point project, suggesting that this too is really happening.

What makes this time different is the America's Cup. The promise of tens of thousands of high-earning visitors flocking to the Island in 2017 for the prestigious sailing event creates a scintillating opportunity for new hotels to get off to a flying start and adds urgency for developers to get them built in time.

From a Bermuda employment standpoint, this should create a double wave of opportunities, first in the construction industry as developers work around the clock to build their resorts and then longer-term jobs in the hotels themselves.

In our desperate hope for this turnaround to be real, we must not forget the economic headwinds that will continue to blow. Insurance-industry consolidation and the loss of jobs that inevitably accompanies it, shows no sign of abating. Then there is our demographic destiny, scores of baby boomers entering retirement and a shrinking contingent of younger, working Bermudians paying into the system to support them.

With all that said, for the first time in years, a little optimism for our economic prospects may not be misplaced.

An artist's impression of the proposed development at Morgan's Point
A cloud of dust forms after the old Club Med was imploded on August 25, 2008

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Published August 13, 2015 at 9:00 am (Updated August 13, 2015 at 1:40 am)

At last, green shoots in our dry economy

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