About one month from now, Finance Minister Paula Cox will deliver what will certainly be the most difficult Budget speech of her career.

Those who somehow thought that Bermuda would be immune from the global economic downturn must know now that they were wrong; it's not a question of whether Bermuda will be affected, but how much, and for how long.

Friday's announcement by the Fairmont Southampton Princess that it is eliminating 35 jobs is the latest confirmation of that fact. It is likely that there will be more to come.

Thirty-five jobs may not seem like a lot in broad economic terms, but it is the cumulative effect of five jobs here, 35 there and 47 somewhere else that matters – and those are just the job losses the public hears about, not to mention the jobs that simply go unfilled.

With around 39,000 jobs in the Bermuda economy, the loss of several hundred positions is a material decline in economic terms, and it may be much worse than that.

It is reasonable to expect that international business and tourism will both see some declines in jobs and activity over the next 12 months. That will continue long term trends which have seen tourism downsize already while international companies have been outsourcing elsewhere for some time as well.

The area of greatest concern is in construction, which has been the main driver of the economy for most of the last decade. With hotel projects only coming on line slowly, if at all, and most commercial office buildings due for completion over the next nine months, it is reasonable to expect heavy reductions in a sector that employed 3,500 people or nine percent of the workforce in 2007.

While many of the employees let go will be non-Bermudian, a notional but not impossible 1,000 job loss in this sector alone would see around $50 million in wages alone taken out of the economy. For that reason, Ms Cox's challenges this year are several. She needs to ensure that people who find themselves in problems have an adequate safety net, and that employers and employees are not burdened by tax and regulation to such an extent that it would be easier simply to shed jobs or close.

At the same time, Government needs to have sufficient public sector capital projects in train to inject liquidity into the economy and to keep the construction sector occupied, albeit at a lesser scale than it is in its current overheated state. Much of that will have to be done through borrowing, in which, despite Bermuda's high creditworthiness, may be harder to get at terms Bermuda can live with. That's too bad.

This newspaper and others have been calling for some years for Government to restrain both its capital and current account spending during the recent good years, both to reduce overheating and to ensure there was either cash in reserve for precisely this kind of occurrence, or to lower the Island's current indebtedness.

Instead, Bermuda will have to increase its debt at the same time that it is almost certain that tax revenues will be going down. This is not an insuperable problem, and compared to many western economies, Bermuda is in relatively good shape, but it could have been much better.

Ms Cox may have to grapple with the question of whether she can let the Island run a deficit on its current account spending. This assumes that tax revenues will decline at a time when any Finance Minister would be reluctant to raise taxes, and that Government has either failed to reach the ten percent cut in spending without job losses target that was set last year or needs even deeper cuts.

It is difficult to conceive how the targets can be met without a reduction in the public sector, but compounding the problem is the expenditure that will be required on Future Care, which is likely to be very expensive.

Still, it is an exceptionally dangerous slippery slope to take to start using debt to pay for current account expenses; the equivalent of going to the bank for a loan to pay the rent or groceries. Ms Cox will not, it is to be hoped, have to consider the possibility. Better to delay programmes like Future Care until the Island has got through the current crisis than to implement them and make Bermuda's future prospects worse.