Country Report Bermuda July 2009

Outlook for 2009-10

The popularity of the premier, Ewart Brown, is set to decline further as an economic downturn gathers pace. His Progressive Labour Party (PLP) will focus on raising public spending and social benefit payments to counteract the effect of recession, but its ability to meet its macroeconomic and fiscal goals will be tested, as the Economist Intelligence Unit expects revenue to be lower and spending higher than the budget estimates. We expect that public borrowing will rise to 10% of GDP in 2009/10. A severe US contraction will depress Bermuda's economy in 2009, with risks of a more protracted recession if an expected recovery in the US in 2010 falters. Lower international oil and food prices will curb inflationary pressures, as will weaker consumer demand. A lower import bill will help offset a decline in services income, allowing the current account to remain in surplus.

The political scene

The premier survived a no-confidence vote on June 20th. The opposition-inspired vote failed to attract support from rebel members of the governing PLP, despite considerable disquiet over Mr Brown's leadership. Earlier in June a public furore erupted over Mr Brown's decision to grant asylum to four Chinese detainees released from the US's Guantanamo Bay prison, which has also resulted in further strains with the UK government, which argues that national security issues are at stake.

The domestic economy

As fiscal pressures mount, an ambitious scheme to provide all senior citizens with healthcare coverage has had to be split into two phases. In May the premier agreed to forgive a US$6.8m debt held by the Bermuda Industrial Union in return for a cessation of wildcat strike actions. New anti-money-laundering legislation came into effect at the end of June. Two credit rating agencies have marked down ratings on Bermuda.

Economic policy

An economic slowdown has gathered pace in the first half of 2009 with lower tourism and investment flows harming employment. Slowing growth has weakened consumer demand, with retail sales in March falling for an eleventh consecutive month. Demand weakness is also evident from the consumer price index, with annual price increases falling to 1.9% in April 2009.

Foreign trade and payments

Falling imports narrowed the wide trade deficit in the fourth quarter of 2008. Profit remittances and falling investment narrowed the current account balance markedly over the quarter but falling import demand and lower income outflows will continue to support a balance of payments surplus.

This report covers the following industry codes:
SIC Code: 10;60;70
NAICS Code: 212;52;72