Government analysts predict further growth in Bermuda's economy during the year, with nominal growth in gross domestic product (GDP) projected at five percent.

That was the assessment of the 1996 Economic Review, a document prepared annually by the Ministry of Finance and presented in tandem with the Budget Statement.

But it warned almost immediately that "the risks to this forecast are high and symmetrically distributed.'' The report concludes that growth in output will remain uneven, with construction and international business offering the best continued opportunities for further expansion.

But it said the amount and timing of increased activity are dependent as much on confidence as they are on strictly economic factors.

The government has supported the process of structural change in the economy through measures that include the dilution of protectionist policies and restrictive practices.

But steps being taken to bolster tourism's performance can only be seen as medium-term solutions toward re-focusing the industry toward sustainable growth, and, can only work if there is a firm commitment to change from all of the industry's stake holders.

The document also reported that foreign currency earnings from international business grew at a record rate during 1995, jumping 22.3 percent to $527 million, after growth of 10 percent in 1994 and 9.2 percent in 1993.

And $442.7 million of that money was earned by Bermuda-registered companies with a physical business presence here (three percent of the register), while the other $84.3 million was earned by those without. Another $132.9 million in foreign currency was earned through the professional services provided by locally-based banks, lawyers, accountants and management companies.

In total, the international business sector generated $659.9 million in foreign currency. And employment levels in this sector grew six percent in 1995 and seven percent in 1996 (from 2,400 to 2,600). More than 12,000 jobs were dependent on the trading activities of international companies.

The Ministry of Finance has projected that in the year ahead government debt (net of sinking fund) will continue to rise from a projection of $140 million next month.

Government spending is expected to reach $514 million or 24 percent of GDP during fiscal 1996/97. And with a borrowing limit of $185 million, the government is continuing with its capital spending programme.

A summary of economic indicators presented a picture of a Bermudian economy, blessed with 1996 record earnings from international business but lower imports, causing a large upward revision to GDP estimates and an upward revision to the 1995 balance of payments current account surplus to a record $147 million. The 1996 surplus may be a little lower.

Tourism results were mixed last year, with a record 180,226 cruise ship passengers and a less than one percent year-over-year increase of air arrivals totaling 571,676. But visitor expenditure and bed nights were down as tourists stayed for shorter periods.

Air arrivals spent an estimated $350.4 million in Bermuda, $119 million of that on shopping, entertainment and transportation and $231.4 million on accommodation and food.

For 1996, there were year-over-year improvements in bed nights sold for private clubs (11.5 percent), small guest houses (6.2 percent) and cottage colonies (1.9 percent). Larger guest houses recorded a 19 percent decline. For the eight major hotels, bed nights sold decreased 1.3 percent in the year to September 30, as overall occupancy fell to 58.9 percent.

Retail sales were stronger in the first quarter, but were estimated to be up just 3.8 percent over the first nine months over the same period in 1995.

Retail employment increased by 71 jobs to 4,302.

The first three quarters of 1996 recorded a 90 percent increase in major construction spending to $52.9 million. It is expected to remain buoyant over the next few years. The housing stock expanded at a slower pace.

Overall employment in Bermuda recovered with a 1.5 percent increase in the number of "filled jobs''.

Price inflation remained steady with the Consumer Price Index (CPI) averaging 2.5 percent.

Total government spending rose to 22.2 percent of GDP during the 95/96 fiscal year, while revenues reached 21.1 percent of GDP. New borrowing of 1.1 percent of GDP was used to finance public sector capital projects.

For the fiscal year to March 1996, nominal GDP was estimated to have grown 6.6 percent to current day prices of $2.0397 billion. And since the trough of the recession in fiscal 1992/93, real GDP has grown by over 10 percent.

Current projections suggest that nominal GDP (at current prices) will increase toward $2.1448 billion during fiscal 1996/97, and real GDP (inflation-adjusted) will reach around $550 million.

Domestic demand (personal consumption expenditure, public and private sector investment expenditure and government consumption) represents more than 91.5 percent of nominal GDP. It grew strongly during the 1980s, but growth has been more muted in the 1990s.

Private consumption expenditure (spending on goods and services in Bermuda and Bermudian purchases overseas) has been more subdued in the 1990s, when compared with the last decade. One Ministry of Finance explanation was a "structural'' reaction to an unsustainable strong consumer spending in the 1980s.

In an economy that has boasted over-employment in four decades to 1990, employment levels fell in recent years. The latest Employment Survey indicated there were 1,600 fewer jobs in Bermuda in 1996 when compared to 1989, a 4.4 percent drop. That alone could cause a decline in spending.

Second, the 1980s spending boom grew out of a strong expansion in credit and large increases in real wages, which, especially in tourism, could not be sustained in the 1990s.

Yet Tax Commission data show since the beginning of 1995, total employment income levels have been on a strong upward trend, fuelled by improved employment levels and pay increases.

Reasons why increased disposable income have not led to proportional increases in expenditure include the increased awareness about spending opportunities overseas. Some $28.5 million is the estimated overseas expenditure declared by returning residents, against $508 million in annual retail turnover on the Island.

Residents have also substantially increased the amount of orders for dutiable goods that are couriered to the Island. And there has been a considerable increase in household spending on overseas travel.

The Bermuda Monetary Authority (BMA) estimates that $122 million was spent in the first nine months of 1996 by residents on travel and other travel funds, $16 million or 15.1 percent more than in the same period the year before.

And balance of payments figures indicate that residents may have been diversifying their asset holdings by making portfolio investments in international markets.

HOUSE OF ASSEMBLY HOA BUDGET '97 TAXES TAX GOVERNMENT GVT FINANCE FIN