It is hard to put much faith in Bermuda’s 2012 budget when it follows the same strategy as last year: maintain the status quo, increase debt and hope a US recovery leads to a Bermuda recovery. The problem with this approach is that it shows that our government firmly believes that Bermuda’s recession was caused by the global downturn and is not related to our own policy decisions. This is concerning as it stands in contrast to their original beliefs that Bermuda wouldn’t be impacted by the US recession. Further, we’re ignoring the evidence that departing non-Bermudian workers have taken a great deal of spending out of the economy. Bermuda won’t see any form of recovery until we attract back high disposable income non-Bermudians and make them once again feel welcome as we’ve left ourselves with no alternatives.
It is wholly concerning that our government is still trying to rely on their predictions related to the US economy as the foundation of our strategy for overcoming our recession. Their predictions haven’t exactly panned out terribly well and it ignores the possibility that our recession isn’t simply caused by the global one.
Let’s look back to March 13th 2008 where then Attorney General Senator Kim Wilson stated:
“In the United States, the national economy is probably already in — or about to slide into — a recession. While opinions and expectations vary widely, a large majority of respected forecasters now expect at least two quarters of declining real GDP (gross domestic product).
“In Bermuda’s case, the outlook is cautiously optimistic. Given the prevailing uncertainty in the global outlook, the Ministry of Finance anticipates that Bermuda’s GDP will likely settle in the range of 2.5 percent to three precent. The effect of a short term US recession won’t be adverse to Bermuda.“
Later in the piece, Senator Walton Brown is attributed as pointing out that while the US had a small recession in the early 1990s Bermuda was not impacted because of international businesses and construction projects.
Our government missed recognizing the severity of the US and global recession. Certainly there were many who did but it raises concerns when they continue to rely on forecasts of the US economy as the bellweather for Bermuda’s. Further, it was originally assumed Bermuda wouldn’t be impacted. The thought was that due to international business and construction (driven by growth in international business) that we would be shielded from the effects of a small recession. The recession was bigger than expected but why did this have an impact on Bermuda’s economy? What changed?
While the global recession was much larger than expected, the evidence that should concern many is that despite the US showing signs of recovery, Bermuda is showing no signs. Bermuda, due to it’s insurance focused international business industry should have been more shielded from the recession and yet it wasn’t. Bermuda has suffered far worse than most originally assumed it would. Why?
The problem we face is that people assume cause and effect. There’s a global recession so that must mean a local one. The key is understanding what the underlying drivers are of the local recession. Why are we in a downturn. It isn’t simply because the world is in one. It’s because we were in a boom period that busted. It’s because we created a wealth of policy to drive away guest workers. As a result, our overall population has declined and with it has gone the ancillary spending. This has caused a cascading decline where Bermudians lose their jobs and also spend less. We need to reverse this trend.
There is clear evidence that the number of non-Bermudian workers has declined significantly since 2008. With them has gone local spending and growth. Regardless of the cause or catalyst, this is the foundation of our recession and it needs to be clearly understood. This is why it is difficult to put much faith in Bermuda’s 2012 budget and why it’s so concerning. If we follow the same strategies of maintaining the status quo, increasing debt and hoping a US recovery leads to a Bermuda recovery we won’t have addressed the root cause of our economic problems and we’ll be no closer to recovery.