Bermuda suffered a third successive year of recession in 2011, according to data released yesterday by Government.Figures published by the Department of Statistics show that gross domestic product — the value of goods and services produced in Bermuda — fell to $5.6 billion, a decline of 3.5 percent from 2010. After adjustment for inflation, the GDP shrank 2.8 percent.This translated into a 4.1 percent fall in GDP per capita, which was measured at $85,996.Yesterday’s data also show that the economy fared worse in 2010 than had previously been estimated, as the change in real GDP for that year was revised from a fall of 1.9 percent to a 2.2 percent decrease.Ten of 15 sectors named in the report experienced lower economic activity, with the strongest impact felt in the construction, manufacturing and international business sectors.Reasons given for the declines in various sectors include job losses, company closures, company departures and losses for the re/insurance industry related to a spate of natural disasters overseas and low investment returns.Economist Craig Simmons said yesterday that local banks could play a significant role in stimulating recovery — but if they hold back on lending the economy is likely to continue on its downward trend through the end of next year.“With respect to the recovery effort, the Government is almost out of firepower, but the banks are in a position to make a significant contribution by increasing business and consumer lending,” Mr Simmons said.“If history is a guide, it is unlikely that banks will provide the much needed monetary stimulus.“Presently, banks are covering their profit and equity positions, but this promises to set off a vicious cycle of contraction, followed by further decreases in lending which leads to disinvestment by businesses and households, which in turn leads to further contraction.“For this reason the downward spiral is unlikely to end before the end of 2013.”The 2.8 percent contraction in real GDP was outside the estimated range of a 1.5 to 2.5 percent shrinkage forecast by the Ministry of Finance and published in February this year in the National Economic Report 2011.A spokesperson for the Ministry said yesterday that the three-year downturn was “a trend that began as a direct result of the 2008-2009 global recession” and added that “it is clear that the economy is still suffering from the lingering effects of that worldwide event”.The Ministry added that there were bright spots: “Along with the strength exhibited in the real estate and renting activities sector and the financial intermediation sector, the tourism sector experienced a positive year with air visitor figures increasing for the first time since 2007.“This data illustrates that although there was an overall decline in the GDP figures, there are still positive signs in the economy to assist in the journey to economic recovery.”The spokesperson added that “systems have been put in place to turn the economy around and place Bermuda on a steady path to recovery and growth. Government will continue to support the people of Bermuda during this difficult time by remaining committed to maintaining and creating jobs and growing Bermuda’s economy”.Particularly damaging to the Island was the slump in international business, which makes up nearly a quarter of GDP and is the largest contributor to the economy.The sector’s contribution to GDP fell by $122 million, representing a fall of 8.3 percent and a fourth successive year of decline.High catastrophe insurance losses related to natural disasters such as the tsunami in Japan and the earthquake in New Zealand were among the contributing factors to the decline.“These factors, along with a prolonged softening of insurance rates and low investment returns, kept profit margins low for the industry,” stated the report. “Job cuts and the re-domiciling of some companies to other jurisdictions also featured prominently in the weaker performance compared to last year.”Other business sectors continued to face economic challenges, including the transport and communication industry whose output dropped eight percent in 2011, marking the fourth consecutive year of decline.One of the more notable findings of the report was evidence of falling prices in the economy as a whole.While inflation, as measured by the basket of goods in the Consumer Price Index, rose 2.7 percent in 2011, economy-wide inflation, as measured by the broader GDP implicit price index (IPI), actually fell by 0.7 percent.Mr Simmons said if the CPI measure of inflation were used, 2011 could be judged the worst year of the recession.“The economy contracted by 3.5 percent in nominal or ‘non-inflation adjusted’ terms,” Mr Simmons said. “When we take into consideration that consumer prices increased by 2.7 percent over the year, then the ‘inflation-adjusted’ figure is (-3.5 percent plus -2.7 percent) or -6.2 percent.“Alternatively, if you make an ‘economy-wide’ price correction, i.e., you use the implicit price index (IPI), then the contraction is only 2.8 percent.“I’m guessing that the Government will want to use these figures, whilst the Opposition will go for the former.”Mr Simmons added that it appeared that the financial services sector had turned the corner after significant cost cutting measures were implemented early in the recession.“That’s a lesson that other sectors could learn from: if a painful episode cannot be ignored, take the pain early and hope for an early recovery,” he said. “Austerity is based on such a philosophy.“The lack of structural rigidities (union agreements or other contractual or social obligations) allowed the financial sector to carry out its cost cutting measures quickly. The public sector doesn’t have this luxury.“If credence is given to the IPI figures, we can take solace that prices are falling, albeit by only 0.7 percent.“The largest declines are in the hospitality and international business sectors as well as in the local businesses that support international business with IT, retail, accounting and legal services.“This suggests that the self-correcting mechanism is making the necessary supply-side adjustments that are prerequisite for recovery.“These supply-side adjustments include: falling incomes, rents, and, of late, falling public sector incomes.”The report said the communications industry had seen an increase in operating costs as a result of various mergers. Competitive pricing led to a 9.3 percent decline in output for telephone and internet services.Wholesale and retail industry, decreased $30.5 million or 7.4 percent in 2011, with motor vehicles being especially hard hit. Construction activity hit its lowest level since 2001, falling 23.2 percent to $200 million last year.Meanwhile, real estate and renting activities rose 6.3 percent due primarily to the success of realty companies in cutting costs faster than output declined.Output in education, health and social work services increased 5.5 percent due primarily to the rising cost of health services that pushed the economic contribution of health institutions to its highest level on record.The value added by the hotel and restaurant sector fell 2.2 percent in 2011, though higher hotel occupancy levels and visitor expenditure kept sales marginally above the 2010 level. Restaurants continued to be plagued with closures, recording a 4.5 percent drop in food sales.See full report attached under related media.