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Benefits rippling through community

Data released by the Bermuda Government last week affirmed that we are out of recession. Gross domestic product — the sum of all the goods and services the Island produces — grew by 1.5 per cent in the second quarter of this year, the third successive quarter of growth.

It is encouraging indeed to see the economy turning the corner on paper, even though many residents who may have seen their purchasing power eroded by static wages, or pay rises that have not kept pace with inflation, or who are still struggling to find work will be unconvinced that we are out of the woods.

What's evident from the numbers is that we are not seeing a vigorous recovery; not yet anyway. Indeed some of the GDP numbers appear more symptomatic of a shrinking economy than a growing one.

For example, the 2.4 per cent slide in the value of goods and services sold by Bermuda to the rest of the world in the second quarter does not suggest the good times are rolling again. Nor is there evidence of a spike in demand as imports of goods and services fell 7.4 per cent.

However, the main driver of that decrease in imports — the fall in the price of oil — is undeniably a hugely helpful factor in our emergence from recession.

American crude oil prices were higher than $100 a barrel in the summer of last year — as of yesterday afternoon, it was trading at less than $42. This astonishing collapse, caused principally by oversupply, has positive repercussions for our economy and the impact is now becoming evident.

The recent balance of payments figures showed Bermuda spent $10 million less on fuel imports in the first three months of the year than it did in the same period of last year.

That money is a direct stimulus to our economy and the benefits ripple through the community.

Plunging prices at the pump have benefited every motorist. Imagine what the price fall has done for the profit margins of taxi drivers and hauliers, or for the household budgets of drivers who commute from Somerset or St George's to Hamilton every day.

Additionally, Belco customers have seen the fuel adjustment charge on their monthly bill shrink dramatically. This month, Belco reduced the rate to 12 cents per kilowatt-hour — last November, it was 17.5 cents. That's a fall of 31 per cent in the space of 12 months and it leaves a lot of money in the pockets of residents that would previously have been gobbled up.

The saving might not seem much for a single monthly bill or a fill-up at the gas station, but while the oil price stays at these lowly levels, the cumulative effect over time will be significant for all of us. Low oil prices are often compared to a tax cut or a pay rise, and in a place that has not seen much of either in recent years, this is a welcome financial boost for the average person.

So where is that fuel and power bonus going? While some of it will doubtless be used to pay down debt and add to savings, the promising trend in the retail sales figures suggests that consumers are spending at least some of those extra dollars to buy goods and services from local businesses.

The good news is that the experts think it will be a long time before crude oil prices return to $100 a barrel, meaning that this stimulus to our economy should not be short-lived.

Just last week, the International Energy Agency reported its outlook for the next five years. Although the IEA found it unlikely that oil would stay cheaper than $50 in the long term, it predicted that prices would rise only gradually to about $80 a barrel by 2020.

Although longer-term price predictions for the volatile energy markets should be taken with a large pinch of salt, the IEA's observations are encouraging for countries such as Bermuda that consume fossil fuels and produce none.

However, a glance at the history of oil prices suggests that they cannot be relied upon to stay low and eventually there will be a spike every bit as surprising to the market as the collapse that happened in the second half of last year.

It is unlikely that we will ever be completely free of the economic tyranny of volatile global energy markets. However, adding a larger proportion of renewable energy sources into the mix will at least mitigate the impact. And we should not let this period of low oil prices weaken our resolve to pursue alternative energy solutions.

The Government, in its electricity sector policy document, states the belief that 35 per cent of electricity could come from renewable sources by 2025. The bulk of this increase it sees coming from ocean-based energy technologies that are not yet broadly available, while smaller contributions are expected from solar panels, solar water heaters and the conversion of waste to energy.

It's the right direction to go — for the economy as well as the environment.

Stimulating the economy: the main driver of our decrease in imports, the fall in the price of oil, is a hugely helpful factor in our emergence from recession. Bermuda spent $10 million less on fuel imports in the first three months of the year than in the same period last year (File photograph)

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Published November 13, 2015 at 8:00 am (Updated November 13, 2015 at 12:09 am)

Benefits rippling through community

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