Bermuda's economy has demonstrated remarkable resilience in recent years, but recent reports suggest that it is beginning to be affected by the worldwide economic downturn.

Finance Minister Paula Cox's announcement on Friday that Government had reduced its estimate for real gross domestic product growth from between three and 3.5 percent to between 2.5 and three percent is the first genuine admission from Government that all is not well.

Ms Cox also revealed that the underlying inflation rate for 2008 is now 4.2 percent; that's well above the three percent target set in the Budget. What's more, whatever the official rate is, price increases feel much higher, and it is a truism that inflation, especially when it is fuelled by oil price surges, affects the poor more than the rich.

Ms Cox said retail sales in the first quarter had risen, but once inflation is taken into account, the volume of sales actually fell in two of the first three months of the year. Through May, sales have fallen in three of the five months, with May recording a 3.3 percent decline.

Worse, Bermuda's current account balance of payments surplus halved in the first quarter as the cost of imports surged ahead of the income Bermuda earned.

It is also official that Premier Dr. Ewart Brown's much ballyhooed tourism turnaround has not just ground to a halt, but has been thrown into reverse.

Air arrivals in the first quarter dropped by almost ten percent compared to 2007, while the more important visitor spending figure slumped by a massive 21 percent. Since then, there has been little sign of improvement.

Dr. Brown can of course lay much of the blame for this on external factors over which Bermuda has little control. Rising fuel prices have driven up airfares at the same that it has reduced flights, while the weakness of the US economy always has a dampening effect on Bermuda tourism, especially out of the Northeast US.

But Dr. Brown took the lion's share of the credit for tourism's turnaround in 2006 and 2007, even though it was assisted by a stronger US economy and a vast increase in cruise ship visits. Now he needs to take some of the blame, not least for the mishandling of the cruise ship policy this year.

More broadly, Government has spent enormous amounts of money in the last few years, reversing the fiscal prudence that marked the first years of the PLP's tenure. Indeed, that very prudence may well have cost both Dame Jennifer Smith and Alex Scott their jobs.

Dr. Brown has shown little reticence about financial restraint (apart from advertising in this newspaper, of course) and Bermuda may now be forced to pay the price.

That's because Bermuda's economy was allowed to overheat to a drastic degree which in turn has driven inflation up, entirely apart from fuel price increases.

The strong economy also allowed Government to raise more revenue to fund spending. Those days may now be over.

With tourism arrivals down, tax revenues from that sector will also fall, while international business is seeing growth, but at a less impressive rate than previously.

And the betting here is that construction, which has been enjoying one of its longest booms in decades, will also start to slow down.

To be sure, none of the current statistics suggest that Bermuda is in recession. But steps need to be taken now to avoid it.

One is for Government to start tightening its own belt, and quickly.

Ms Cox has enjoyed a good record as Finance Minister, but Finance Ministers really prove their worth in hard times, not good times, and Ms Cox now needs to show her mettle.