A local economist has highlighted the convergent implications of Bermuda’s shrinking and ageing population, the housing shortage, the growth of international business and the technology advances in artificial intelligence.

Nathan Kowalski, chief financial officer and chief economist at Anchor Investment Management, was making a presentation at the Association of Bermuda International Companies’ annual meeting.

He revealed that the island’s job growth recovery from the pandemic was exclusively driven by IB, a segment he estimated now represented half of the Bermuda economy.

He noted how revenue from the new corporate income tax offered an opportunity to strengthen Bermuda’s long-term future, while reducing the national debt.

Mr Kowalski discussed the critical growing importance of IB to Bermuda: “In 1997, IB was 15 per cent of employment income — it’s now over 40 per cent,” he said.

Statistics show that 54.3 per cent of the 34,000 jobholders in Bermuda are over 55 years old.

He said 75 per cent of physicians are now over 45 and so are 73 per cent of painters and 95 per cent of taxi drivers and chauffeurs. Some 9 per cent of the whole workforce is over 65 and make up about 1.5 times the number of employed 18 to 26-year-olds, dramatically affecting healthcare costs.

He also said that since 2017 the number of deaths had outstripped the number of births. In 2023, there were 622 deaths and 330 births of children with at least one Bermudian parent and the difference is expanding quite rapidly.

It is clear that immigration, or a reversal of emigration, will be a necessary component to stop the rapid population decline, he said.

A related challenge is Bermuda’s struggle with housing affordability and supply, he added.

The reasons included reduced inventory, influenced by the “Airbnb effect”; hesitancy on tackling rent control issues; slow increases in supply; and escalating building costs.

“We will never solve the population challenges and the housing challenge at the same time,” Mr Kowalski said. “The two are difficult to reconcile simultaneously in an effective fashion.”

Without an expansion of the workforce growth, Bermuda would need to rely on increases in productivity to support economic growth, he said. Productivity growth has picked up to 2.7 per cent over the past five years.

“Gross value added from the peak in 2007 has fallen about 12 per cent, but actually the number of total employed people has fallen by 18 per cent,” Mr Kowalski said.

“So, as the economy continues to recover and grow, it appears fewer workers are capable of doing more.”

He added that he expected this trend to continue, driven by IB’s growing share of the economy and the influence of AI.

Citing a report by business consultancy McKinsey, Mr Kowalski said generative AI was expected to have the biggest impact on higher-wage knowledge workers, including areas that had previously been regarded as immune to automation.

“In some sense, Bermuda’s higher level of jobs retained on island may limit the scope of automation, but I don't think it’s immune. In fact, according to my calculations, about half of the jobs are likely in scope. It’s too early to determine exactly how this will end up. The trade-off here is productivity might accelerate but it may come at the expense of less job growth.”

On revenue from the corporate income tax, Mr Kowalski favoured the approach of the Fiscal Responsibility Panel, ensuring that CIT revenue should be accounted for separately, with strong guardrails in place, and an emphasis on using the proceeds to pay down Bermuda’s $3.2 billion debt and building a sovereign wealth fund.

“I see it as a great chance to set the island up for the future and for the youth,” Mr Kowalski said. “Unfortunately, I don't think we think about the next generation enough. They didn’t accrue the $3.2 billion debt. They didn't underfund the pensions. It's now time for us to set them up for the future.”

The AGM also heard from Abic chairman, Christian Dunleavy, about the association’s year and international business.