Budget, concludes that with a real growth in GDP (Gross Domestic Product) in 1993/94, Bermuda has put the most visible effects of the recession behind it.

But it recognises the severe financial strain the recession put on many local companies, and suggests that some remain vulnerable.

In an age where companies have to be competitive to survive, Bermuda has seen many companies re-structuring and streamlining.

The pace of economic growth is expected to finish up this fiscal year at about 3.5 percent, and moderate further in the coming fiscal year between 2.5 and three percent.

The bottom line at the end of the year will depend upon the maintenance of consumer confidence, industrial harmony and moderation in wage talks.

The report also concludes that with the possibility of further interest rate increases in the US, Bermuda's short term rates should also rise, although not necessarily in line with the US, because of the different level of economic activity and differences in liquidity.

The economic review was set against an international backdrop of flat inflation, but with a proviso that generally the disinflationary process has run its course and that inflation performance throughout OECD (Organisation for Economic Co-operation and Development) countries is likely to become more diverse.

Bermuda is said to be well positioned to benefit from an anticipated growth in financial services.

Output from Bermuda's major trading partner, the United States, has continued to expand and it is believed that the 1994 Gross Domestic Product (GDP) growth will be about four percent.

The US has seen improved employment and dampened inflation, although a tightening of the monetary policy through interest rate hikes by the Federal Reserve Board may be too late to avoid higher inflation.

The US dollar was weak through much of 1994, although a modest improvement since November could continue throughout 1995.

In Bermuda, GDP growth during 1993/94 reversed a decline of the previous three years and, measured by current market prices, increased by 8.4 percent for the year to last March. The second quarter growth had the GDP up to $1.86 billion.

The number of tourists last year, nearly 590,000, was up four percent on 1993, the fourth best performance. Air arrivals were up less than one percent.

Cruise passengers, comprising almost 30 percent of the total, were up by more than 12 percent to nearly 173,000.

Visitor expenditure was up 6.7 percent to $427.3 million. International companies spent $391.7 million in 1993, some 9.2 percent more than the year before.

Total foreign currency earnings rose 3.7 percent to $485.1 million. It represented 41.6 percent of total foreign currency earnings.

The latest figures estimate that of the $391.7 million spent in 1993 by international companies, $208.1 million or 53 percent was spent by insurance related companies.

Payments of professional fees to Bermudian companies rose by 3.2 percent to $135.7 million. Salaries and benefits rose to $143 million. The direct contribution to Government from international companies in the form of fees, annual taxes, land tax and hospital levy rose 6.2 percent in 1993 to $32.7 million.

Other international operations (e.g. trust and investment management business and foreign currency deposit, lending and other fee-based activities) of Bermudian banks and the member firms of the Bermuda International Business Association generated an additional $93.4 million in foreign currency receipts, a decrease of 14.2 percent from 1992.

New exempted companies and partnerships, together with permit companies, were up 8.5 percent to 8,224, a net increase of 646 companies. The August manpower survey counted an increase of 716 jobs, up to 34,143, the first increase since 1988.

Yet, with 529 people registered as looking for work in November, the Government suggested real unemployment could have been as high as 1,322 (and seriously worse five months before) as a result of their estimation "that roughly 60 percent of those persons unemployed do not register at the Government Employment Office.'' The Government extrapolates from their information that the unemployment rate went from 6.8 percent last June down to 4.5 percent in November.

The value of retail sales, firming in 1993, began to soften again by the second and third quarters of 1994.

The Government's current account balance of payments surplus improved from $11 million in 1992 to $47 million in 1993. And provisional figures for the first nine months of 1994 show a surplus of $70 million, compared with $56 million in the same period in 1993.

The current account is traditionally in deficit in the fourth quarter, and the Government anticipates ending up with a surplus of between $50 million and $60 million.

But there remains concern about visitor expenditure in constant 1975/76 prices, which gives a truer picture of change without the distortion of inflation.

That shows expenditure increased from $124.8 million in 1992/93 to $141 million in 1993/94, a 13 percent increase and the first real growth in four years. But visitor expenditure remains below the $145.7 million earned in 1975/76 and well below the peak of $184.3 million in 1980/81.

Economic Review shows GDP growth Per capita expenditure has declined and that is put down to the increased significance of cruise ships in the overall tourism sector and an erosion in the quality of the Bermuda tourism product, which has reduced the ability of the Island to command higher prices. International company expenditure in constant 1975/76 prices increased from $120.5 million in 1992/93 to $135 million in 1993/94, a record increase of 12 percent.

Domestic demand, in constant 1975/76 prices, increased by 0.5 percent in 1993/94 to $547.9 million. This is $47.9 million or eight percent below the peak level achieved in 1988/89. After three years of decline, consumer expenditure inched higher, especially between September 1993 and March 1994.

The change was brought about by more employment, especially hotels that remained open last winter, and more non-Bermudians being imported, reversing the downward trend that began in 1989.

The level of consumer spending is now expected to grow in terms of the growth of disposable incomes, stabilising and improving with consumer confidence. The Government estimates that 80 percent of retail sales are derived from the local market.

Car sales have improved over the last 21 months, as a result of the Government introduction of a second hand car market.

Government's own consumption declined less than two percent in real terms since their austerity measures began at the start of the recession.

In terms of external demand, the document outlines how increased competition from rate-cutting Caribbean islands tempered an increase in tourism for Bermuda, earlier in the year. It concedes that Bermuda cannot compete as a mass tourism destination.