Getting out of the economic doldrums
Today, The Royal Gazette reports on a gloomy report from Bermuda financial adviser Anchor Investment Management, which confirms what many people will already have felt in their wallets: the Bermuda economy’s rebound has stalled.
After the Covid-19 lockdowns in 2020, it was reasonable to expect that the economy would sharply recover as businesses reopened and people returned to their workplaces.
But, after some strong improvements in the early part of the year, the spring outbreak and the even more severe and continuing Delta variant spike have delayed most of the gains.
To be sure, the effect on the economy has been uneven.
International business has continued to do well through the pandemic and seemingly adjusted well to working at home and delivering services.
It hardly bears thinking about where Bermuda would be if that were not the case; there is much to be grateful for, and the strength of this sector and the continuing stream of new business openings there could not come at a better time.
But it compares starkly with the rest of the economy, which is struggling.
The Anchor report rightly points out that the Bermuda Tourism Authority’s strategy of promoting Bermuda as a Covid-19 safe haven was squeezed by the spring and autumn outbreaks.
At the same time, the report points out that the testing Bermuda required appears to have deterred many visitors when travel within the United States was less restricted and when the rapid increase in vaccinations begged the question of whether visitors needed to be tested so frequently — a point made repeatedly by the hotel sector.
Given that less testing might have led to wider increases in the spread of the Delta variant, this is an arguable point. But there is no doubt that visitor arrivals are disappointing.
As a result, the report states that Bermuda is likely to see a contraction in the economy in the last part of this year, and it projects that real annual growth — after accounting for inflation — is likely to be a near moribund 0.2 per cent.
In other words, Bermuda is nowhere near returning to the levels of economic activity seen in 2019, and that was nothing much to shout about.
This sluggish growth is compounded by inflation, which Anchor argues is higher than the Government’s Consumer Price Index says it is. This will also tally with a lot of people’s anecdotal experiences.
The increase in oil prices to levels not seen in recent years, and a near doubling since last November, means that prices for a much wider range of goods than gasoline and electricity will be affected.
In addition, continued logistics problems will also impact retailers and may well raise prices further, potentially moving Bermuda back to the era of stagflation experienced in the late 1970s when global growth was flat but prices were rising.
The report also notes the increase in the cost of health insurance as a contributor.
Those most affected are not the wealthy but those on middle and low incomes, and it especially hurts the elderly who are dependent on fixed incomes or savings.
With an ageing population, Bermuda is particularly vulnerable.
So what is being done about this?
Bermuda has very little control over inflation and should avoid the temptation of price controls, which usually do more harm than good.
As ever, the real answer to Bermuda’s challenges is economic growth, as well as getting some of our big employers, notably the Fairmont Southampton, back in business.
Bermuda should see improvements in international business and should continue to look at ways of making the island attractive to immigrants. The changes to permanent residents’ status passed in the Senate on Wednesday are a start, but more needs to be done.
Hoping that Bermudians who have emigrated will return is not sufficient; in any event they will not return unless they see a buoyant economy, and that will require more foreign direct investment.
What Bermuda needs urgently are more working-age people filling the island’s offices and workplaces, renting homes, buying items in shops, and eating out and taking an active part in the community.
At this point, this will happen only if immigration and employment restrictions are eased. For the Government, this is still a bitter pill to swallow despite recent changes. But this is not the Bermuda of the 1990s or the early 2000s, let alone the 1970s or 1980s. The economy has been in steady decline since 2008. Businesses and visitors are not beating a path to the door, giving Bermuda the luxury of picking and choosing who can come in.
The Government has tried in some cases to intervene in different sectors in the name of job creation and empowerment. Despite the best intentions, its overall lack of success demonstrates that governments should take care in picking winners and losers.
Certainly, the Government should help those who are in difficulty, especially when it is because of events such as Covid-19, which are largely out of their control.
But when it comes to expanding the economy, the Government is better placed to create the environment and framework within which private enterprise can thrive instead of trying to supersede it.
It can do that by loosening immigration restrictions and making it easier for employers to hire. It can also create a regulatory environment that prevents abuse without making it onerous for businesses to do things as basic as opening a bank account.
And, of course, more than anything, Bermuda needs to end the cycle of repeat Covid-19 outbreaks, which lead inevitably to economic dislocations and make a tourism recovery close to impossible.
That will take a community effort to get vaccinated. It must be obvious by now that vaccinating is not simply a health imperative, although that should be sufficient reason. It is an economic imperative as well.