Economic recovery taking hold

Earlier today, we touched on the drop in the inflation rate and how that helps the Bermuda economy.

The Standard & Poors rating report on Bermuda was also encouraging. It’s not that worrying that S&P maintained its negative outlook, because the affirmation of the AA- credit rating is the key thing.economy bermuda

My feeling is that the ratings agencies, being primarily backward looking in their research, tend to be about six months to a year behind the actual situation. Thus, when the Bermuda economy was imploding, the agencies were all saying how wonderful things were. Then came the ratings revisions after Bermuda hit rock bottom, and now that things are beginning to improve, they are steady, but still covering themselves with the negative outlook.

The reason for renewed optimism is the release of the 4th quarter Bulletin of Statistics yesterday. Unfortunately, the main report send out is filled entirely with news that, for the most part has already been released, like the tourism arrivals. The real gold is in the detailed tables which are released to a smaller group of recipients at the same time. (If you want them, you have to call the Department and ask to be sent the detailed tables for the QBS. They will oblige.)

Anyway, there are some additional tourism numbers that make for good reading, so le’s deal with them first.

Although total visitor arrivals were down 5.6% for the year due to the decline in cruise ship visits, spending was just about flat for the year at $391 million compared to $392 million a year earlier. And air visitor arrivals were up by 1.8% while spending was up by two percent. It’s worth repeating that air visitors are much more valuable to the Bermuda economy than cruise passengers. Here are the numbers for 2013:

340,000 cruise passengers spent $72.8 million – an average of $214 each.

236,000 air visitors spent $318 million – an average of $1,314 each.

It is so obvious that we should be focusing on air visitors, and yet every time there’s a cruise cancellation, you can feel the panic.

Having said that, I am always pretty skeptical about the revenue figures, which are drawn from surveys with departing visitors. The better number, which is really encouraging, is hotel gross receipts, which jumped 3.4% for the year to $268 million. That’s a tangible sign of improvement.

Even more encouraging, imports in 2013 rose by 13.6% to over $1 billion, the first time that has happened in quite a while. Although part of this is to do with increases in cost, for example for fuel, the fact imports rose so much faster than the rate of inflation suggests the economy, and confidence, are growing.

Other number are less positive, but still suggest improvement.

Employment income is up marginally, but is very uneven, with international business income up, but financial intermediation down, and so on. Even construction is up a bit, but more on that later.

Retail sales have shown some signs of improvement after a prolonged decline.

Company registrations are up, as has been reported quite widely.

Construction remains very weak. Just 118 residential units were added in 2013, compared to 228 in 2013. The value of work completed in 2013 was $127 million compared to $190 million a year earlier.

More worryingly, the estimated value of construction starts in 2013 was just $52.9 million compared to $106 million in 2012 and $302 million in 2011 (mainly the hospital).

As an indicator of upcoming work, that’s incredibly poor. This is not a secret. The hospital and the Waterloo House project carried the construction sector in the last few years. Right now the only project actually underway is the Hamilton Princess renovation. So hard times are likely to return for construction unless a few hotel projects get going, but how often have you heard that?

Still, it’s worth repeating that while infrastructure projects can help a weak economy, increased construction is a consequence of a strong economy and should not be seen as a driver. That’s a mistake Bermuda made in the last decade and not one that should be repeated.

Still, the indicators are getting better for Bermuda. That dies not mean the boom years are back, and it does not mean that this recovery is that robust, or that it can’t be derailed. But it looks like things, finally, are improving.

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