A shrunken workforce, growing insecurity over jobs and major changes in the United States and Europe add up to an uncertain 12 months ahead for Bermuda, according to economist Craig Simmons.

But Mr Simmons also pointed to reasons to be cheerful, with many hopeful the impact of debt is finally starting to clear, and aspects of quality of life improving across the board.

Your view on the island’s prospects for 2017 depends on whether your glass is half-empty or half-full, the Bermuda College economist told The Royal Gazette in his end-of-year assessment of the economy.

“If, for example, you believe that the recession was caused by a foreign and then a local financial crisis, then you probably believe that the impact of the debt overhang is waning and will be over soon,” Mr Simmons said.

“In other words, you place considerable faith in the notion that the banking sector is steadily recovering from its 2004 sojourn into insanity.

“Or maybe, GDP is not capturing that people are, in fact, happier today because of quality improvements in the goods and services they buy as well as new products entering the market.

“For example, smartphones have replaced the camera, GPS and music systems put people in constant contact with their loved ones and the world at large.

“If you accept this line of reasoning, then the problem is not the economy, it is the way in which we count the goods and services we enjoy.

“If, however, you believe our malaise is a result of a loss of prime-aged individuals — about 7,000 — then the future doesn’t look bright.

“It will take years before we can create the conditions for a 40,000 person labour force.

“And equally depressing, if you believe that financial innovation is leading to the replacement of brick-and-mortar reinsurance with more nimble insurance-linked securities, then many high-paying reinsurance jobs are gone forever. ILS are creating space at the intersection of the reinsurance and investment sectors. And as was the case with Edison’s lightbulb, it put a lot of people out of work.”

Bermuda’s economic risks as a result of Britain leaving the European Union and Donald Trump becoming president are “unequivocally elevated”, Mr Simmons said.

He said: “Brexit will make it harder for Bermuda to have its views on tax avoidance, reinsurance and financial services in general heard by Europeans.

“US reluctance to sign the Trans-Pacific Partnership and promises to revisit the North American Free Trade Agreement are creating headwinds to US medium-term growth.

“Trumponomics misses the point that the problem in the US is not the size of the trade deficit, or more technically the current account deficit.”

He noted the trade deficit of $500 billion today is smaller than it has been for some time, and compares with $800 billion in 2007.

“The president-elect would be better served concentrating effort to raising US productivity, reducing involuntary unemployment and inequality, and improving the US economy’s ability to handle external shocks,” Mr Simmons said.

“The imposition of tariffs and other trade restrictions promises to drive the value of the US dollar higher and as a consequence its exports lower. Tariffs will cause Americans to import less and so supply fewer dollars to foreign-exchange markets. This reduced supply of dollars will cause the dollar to appreciate, making US exports less attractive to the rest of the world.

“One desired effect of the US Federal Reserve’s quantitative easing programme between 2008 and 2015 was that it caused the dollar to depreciate.

“The depreciation lead to the subsequent boost in US exports, which in turn is what lifted the US economy out of its 18-month recession that started in late 2007.”

Locally, Mr Simmons pointed to signs of recovery in air arrivals, with a year-to-date increase of 9.3 per cent reported in October.

He also identified a “turnaround of sorts” in the banking sector, although he did note that non-performing loans remained a concern.

“Not since 2009 have customer deposits, a nominal indicator, grown. But they did at the start of this year,” he said.

“Deposits are a leading indicator of consumer and business spending. An increase in deposits suggests that people are saving more because they are earning more.” He said inflation-adjusted savings have increased by 3 per cent year-on-year to $1.9 billion for a savings rate of 33 per cent of GDP; US and UK savings rates are 18 per cent and 12 per cent respectively.

However, while non-performing loans as a percentage of total loans have decreased steadily to 7.2 per cent, he noted non-performing loans as a percentage of bank capital remain stubbornly high at 42 per cent.

Before the recession, the figures were 2 per cent and 7 per cent respectively.

By comparison, non-performing loans to total loans in other countries are: Singapore 0.9 per cent; the US 1.5 per cent, Britain 1.4 per cent; Iceland 2 per cent; Malta 9.4 per cent; Ireland 14.9 per cent; Italy 18 per cent; and Greece 34.7 per cent.

Another monetary indicator, the loan-to-deposit ratio, has declined to 110 per cent after reaching its peak of 151 per cent in 2011.

Mr Simmons predicted it will take another 12 months for that ratio to fall below 100 per cent, which would prompt lending to start rising.