Island’s economic output plunges
Bermuda's economic output shrank by 8.1 percent in real terms last year a dramatically worse recession than Government forecasts had anticipated.
The news that the Island's 2009 gross domestic product (GDP) slumped by 5.8 percent or 8.1 percent after taking inflation into account was revealed in a release from the Department of Statistics yesterday.
Sharp falls in the domestic output of international business, financial services, hospitality and construction drove the plunge in GDP, which is the total value of goods and services produced by the Island.
Financial services saw the most dramatic decline, with output falling by 27.5 percent, while the main economic pillar of international business saw its output tumble for the second successive year.
Hotels and restaurants contributed 21 percent less to the economy, while construction output plummeted 14.3 percent and the retail sector was 3.2 percent down.
The Island's GDP totalled $5.7 billion, compared to $6.1 billion in 2008, while GDP per capita fell 6.3 percent to $86,875.
Finance Minister and Premier Paula Cox had estimated in her Budget statement in February this year that 2009's GDP would be down by approximately 2.5 percent.
With the full extent of last year's downturn now revealed to have been considerably worse, there was sober reaction from politicians and business leaders yesterday.
Premier Ms Cox said: “The 2009 recession was the most severe one to have affected Bermuda since the 1930s and the Bermuda economy was buffeted by economic forces far beyond its control.
“The severity of the recession has impacted sharply on the financial position of the Government and many companies in Bermuda and it is likely that they can only return to profitability by increased productivity and flexibility of the labour force.
“Meanwhile Government is committed to continue to play its part during the economic recovery by using the fiscal tools at our disposal and will continue the existing payroll tax relief for the hotel and restaurant sector.
“We will continue to have challenges but if everyone is prepared to pull together, Bermuda would then be well placed to take advantage of the eventual upturn in overseas economies, particularly that of the United States.”
In her statement, the Premier did not address our questions on why the forecasts had been so inaccurate or whether the Finance Ministry had revised its forecast of one percent growth in GDP for 2010.
A statement from the Bermuda Chamber of Commerce Economics Committee said: “These figures, as bad as they are, come as no surprise to our members.
“They have been working and living through a recession unlike anything in Bermuda's recent history and are all too painfully aware of the individual hardships and difficult decisions that underlie these numbers.”
Shadow Finance Minister and United Bermuda Party MP Bob Richards, who has consistently attacked Government economic forecasts for being overly optimistic, said the GDP numbers were a “reality check”.
“The Government's been living in its own fantasy world for a long while now and perhaps this will be a jolt for them,” Mr Richards said yesterday.
“For comparison, in the US, where they've had the worst recession for decades, GDP went down by 2.6 percent in real terms last year we have declined by 8.1 percent.
“As all of us already know anecdotally, Bermuda is in a serious downdraft.”
While the economy is getting smaller, Government is getting bigger, Mr Richards added, noting that public administration had been the only sector to record a rise in output, of 3.3 percent.
“One thing we don't need in Bermuda is more government, especially when we don't have the wherewithal to pay for it,” he said. “Some tough decisions have to be taken by the Finance Minister and I hope, for all of our sakes, that they are made soon.”
Michael Fahy, the finance spokesman for the Bermuda Democratic Alliance, said: “When you fail to plan, you plan to fail and that is clearly what has happened here with the Government.”
He said the Finance Ministry had made “a very bad job” of forecasting economic growth, noting that the fall in GDP had been more than double what had been publicly estimated, a deviation that would jeopardise Government's ability to project revenues and to plan its budget.
Mr. Fahy accused Government of a failure to set aside money during the good years, which could now have been used as a stimulus, particularly in the form of public construction projects.
And he called for the Finance Ministry to reverse this year's increase in payroll tax rates to ease the pain for businesses and promote employment.
He said the increase, from 14 percent to 16 percent, coupled with a raising of the tax cap, which hit high earners, had been counter-productive.
“I'm willing to bet that Government has collected less tax revenue since the increase in payroll tax than it was collecting before,” Mr Fahy said.