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Economist makes dire predictions

Industry focus: Hundreds listen to a panel discussion at yesterday's EY Global (Re)insurance Outlook conference at the Fairmont Southampton

Bermuda priced itself out of major tourism with the growth of international business, a top economist said yesterday.

Controversial former newspaper and TV pundit Roger Nightingale said: “You can’t have the tourism of that kind and the finance.

“If business goes up, wages go up and that prices them out of the market.”

And he predicted more economic woe next year as central banks and the US Federal Reserve struggle to kick-start national economies.

He was speaking after conference run by financial services firm EY focusing on the future trends in the global insurance and reinsurance markets.

Mr Nightingale told the audience at the Fairmont Southampton: “When you tighten money you do absolutely slow things down — when you loosen money, you’re not sure you’re going to speed things up, you’re just giving the country the capacity to so if it so wishes.”

And he warned that the US economy — which showed small increases in the last two quarters out of three — was not a reliable indicator that the recession was over.

Mr Nightingale said: “Let’s see what happens in the fourth quarter — let’s hope it’s good.”

Mr Nightingale told the 350 attendees that most economists “don’t even know they are con men — they say things without any foundation for what they’re saying”.

But he added that there were economic indicators that pointed towards the likely future direction — like voting patterns, which were closely linked to the economy.

Mr Nightingale said: “If people think the economy is doing well, they vote incumbent. If they think it’s not doing well, they vote anti-incumbent.”

And he pointed out that the Democrats — who have a president in the White House — got “floored” in the recent midterm elections in the US, which pointed to “underlying economic problems”.

He added that continental European economies were “a mess”, while China appeared to be lying about its growth rates, based on data from places like Hong Kong and Australia, which both showed a slowdown in business with China.

Mr Nightingale said: “We know that China is lying about what’s going on, but we don’t know the extent of the lies.

“We know what China says about its exports to Hong Kong and we can check that against what Hong Kong imports. Chinese imports of raw materials from Australia have gone down and imports of equipment from Japan have gone down.”

And he predicted that, in a year, central banks would “up pressure on interest rates” and that “people will save more and borrow less”.

Mr Nightingale said: “What we are heading for, at the very best, is a significant setback on a temporary basis. But much worse, we might go into another depression.”

He added: “I don’t think the outlook for the economy is great, but I do think money will, at least temporarily, stay easy.”

But he explained that — since the 1990s and an increase in the money supply, which allowed people to spend and borrow more — people had lost faith in the central banking system after 20 years of a boom ended with a major recession.

Mr Nightingale said that “people have no respect for the Bank of England or the Fed in the States and they’re not spending the money to keep the economy going”.

And he added: “I don’t know about the timing, but most central banks will carry on keeping money very easy, hoping against hope people will keep spending and keep the depression at bay. It may be right, it may be wrong.

“But looking at oil prices and metals prices, it’s not happening now.”

And he said: “If I’m right about the world economy, everybody’s in for a kicking. It’s very tough to know who will get the biggest kicking.”

Earlier, a panel discussion on emerging risk and how to grow the insurance and reinsurance market heard that changes in the supply-demand balance had created motivation to find ways to expand the industry’s offerings, while new money from groups like pension funds was ideal for some kinds of risks.

But Kean Driscoll, the CEO of Validus Re, said that flood risk, terrorism and US earthquake business meant the industry was “bullish about the medium term prospects”.

Eric Andersen, CEO of Aon Benfield, added: “2015-16 is fraught with danger for some and it will be a huge opportunity for others.”

And Jed Rhoads, president and chief underwriting officer for reinsurance at Markel Re, said that a US decision to make earthquake insurance compulsory in the US would open up new business.

He added: “If we could get enough industry support, pushing for political will — but we have to start thinking about that and lobbying for it.”