Delta variant will sound the death knell for businesses
The latest Covid-19 wave from the Delta variant will sound the death knell for certain Bermuda businesses, economic analysts have surmised, and its effects will hamper the anticipated rebound.
From the same document that theorises the under-reporting of inflation figures from official sources, as reported by The Royal Gazette, and warned that coming inflation figures could be five times higher, Anchor Investment Management has posited that the Delta variant will drag down anticipated growth in the economy.
After five consecutive quarters of economic contraction, Anchor believes that the economy will grow, but it has reduced its initial estimates on the rate of growth.
The firm’s “Bermuda Economic Update”, sent out to clients, said: “We have reassessed our initial estimates for 2021 GDP based on several factors, including actual reported figures for Q1 (which printed a -3.9 per cent nominally), our assessment of the Delta variant’s impact on the domestic economy and overall employment income.
“We still anticipate a sharp rebound in official second-quarter GDP figures when reported, due to the base effects from a significantly depressed 2020 caused by the island lockdown.
“We expect a further improvement in the third quarter from a more functioning tourism sector and improved consumer spending as large events are resumed and the island reopened.
“Unfortunately, we believe the rebound has stalled due to the Delta variant in the final quarter of the year.
“Overall our estimates have come down, and we now see nominal GDP growth of 2.2 per cent for 2021. If we incorporate our inflation estimate of 2.0 per cent, we see real GDP for 2021 coming in at 0.2 per cent.”
As a key update to earlier projections, the investment management team led by Anchor president Jeff Brewer, said: “Unfortunately, the Delta variant has definitely put a spanner in the steady Bermuda economic recovery.”
While they see good news in international business, analysts say that Bermudians can expect another year of pain for tourism stakeholders with slow demand for travel to the island.
Bermuda’s attempts to lure visitors with messaging on Covid safety were undone by outbreaks on either side of the busy season.
Anchor noted that the pandemic, climate change and the potential global income tax law changes represent the most significant risks to the local market.
But an analysis of retail sales and freight movement led to the conclusion that some businesses that have just managed to hang on through the shutdowns will not survive the latest wave, even though retail sales and container volume showed an upswing in economic activity before last month.
The lack of tourists on the island and the original 2020 lockdown dealt a powerful blow to restaurant, retail and hospitality sectors
The report says: “Weekly shipping trends that Anchor monitors show mid-single-digit year-over-year declines in container moves in September, and cancellation of the World Triathlon and other events will produce a difficult period for the local economy.
“The retail sector has been divided into the Covid winners and losers. While restaurants have suffered, food and liquor store sales volumes have increased as more people eat at home.
“Local apparel retail store sales have remained weak, but courier sales continue to hit new records (+23 per cent in the latest 12-month period reported).
“Individuals are also consuming more on household products as they spend more time working from home. Building material sales have been strong, but inventories have been impacted by supply chain issues that slow delivery times.
“The pandemic has caused global freight rates to surge, especially from Asia, and delivery times have increased significantly. As a result, motor vehicle sales are one of the hardest-hit sectors.
“At the same time, inflationary pressure is impacting the pricing of many imported goods. As a result, sales value is increasing more than volumes.
“Container moves on the Hamilton docks rose 10.7 per cent in the first eight months of 2021 compared to the same period in 2020, after a 5.4 per cent decline last year.
“The rolling 12-month trend turned positive in April and was up 9.9 per cent through August and was only 3.0 per cent below 2017 peak levels.
“Refrigerated cargo moves are also up in the first eight months compared to 2020 (+9 per cent).
“Roll-on/roll-off volumes rebounded 30 per cent from 2020 when the initial Covid lockdowns affected construction activity, but volumes were down compared to pre-Covid levels.”