On the face of it, Bermuda's economy is in remarkably robust shape, given the difficult economic conditions in much of the world and the recent turmoil on the world's financial markets, caused largely by the global credit crunch.

Construction, which has driven the Island's domestic economy in recent years, is active, the Island is coming off a strong year in tourism and, by many measures, international business remains in good shape.

But beneath the surface there are reasons to worry.

Globally, the biggest threat to the Island is inflation, with oil and now food prices beginning to spiral upwards. This has serious ramifications for an already expensive Island, since Government has little control over these factors. These effects are already being felt with the annual rate of inflation now averaging around four percent over the last nine months. And anecdotally, it would appear many people are experiencing inflation at higher rates than the official measure.

The weakness of the US economy is also keeping the US dollar at lows not seen in a generation. This is good and bad. For tourism, it may help, since it could encourage US tourists to stay closer to home in US dollar denominated jurisdictions at the same time that it encourages European visitors to head west. But the evidence for this is not that clear, at least so far. Visitor arrivals in December and January were down, while they were up marginally in February. Spending, which is a better measure of tourism's economic contribution, has held up so far, but high spending business travellers are down, which is worrying.

Against that, the weak dollar makes recruiting non-Bermudian workers, especially from Canada and Europe, more expensive, and this may drive up labour costs.

The credit crunch is also having an effect on some international companies and comes as the industry is experiencing the "soft market" part of the insurance cycle, compounded by weak returns from investment markets. All of this means they are less likely to expand and will make economies where they can.

At any rate, it is increasingly clear that international businesses are not creating new jobs in Bermuda to any real extent, but are looking instead to Halifax, Dublin, India, and in two recent cases, Switzerland, to expand. This is a mixed blessing. Bermuda cannot afford to increase its workforce much more, but the new jobs going "offshore" may well be the entry level positions to which new entrants to the international business workforce aspire.

Having said that, there is no suggestion that this key segment of the economy is in deep trouble or is going anywhere else. But it needs to be watched and nurtured carefully, and there is no room for complacency.

Last year, Premier Dr. Ewart Brown declared that Wall Street was lining up to invest in Bermuda hotel developments. Although the Club Med plans still seem to be moving forward, many other developers have gone quiet, and it begs the question of whether they are now finding financing harder to obtain than they did 12 months ago before the subprime crisis hit. At the same time, there are now indications that "fractional ownership", on which many of the developments pinned their hopes, is less vibrant than it was before the US economy faltered.

At the moment, construction remains strong, with plenty of cranes dotting the Hamilton skyline and elsewhere. But it may be that a glut is beginning to develop as corporate expansion slows, and it seems possible that this long boom may be slowing.

To be sure, things are not all bad, and some financial indicators remain extremely robust, not least the balance of payments, which reached record heights for the calendar 2007 year. The Retail Sales Index was also strong in February, but tends to be very erratic. It is also worth noting that food store and service station sales, where inflation has been most pronounced, were among the strongest drivers.