Prices rose by just 1.25 percent in May compared to the previous year, an annual inflation rate that has to be among the lowest in a generation.

In some ways, this is good news, because it makes Bermuda more competitive, and it also means that the public is not suffering from rapidly increasing prices at a time when jobs and money are harder to come by. Certainly, it stands in stark contrast to a year ago, when soaring oil and food prices were driving the Consumer Price Index to record highs and the economy was in grave danger of overheating.

Now the Island seems to be facing the opposite problem – a slowing economy means that the rate of growth in money supply is dropping, and that means less demand for goods. So prices fall, or at least they are not rising as fast. Certainly that seems to be the case in housing, where for the first time in years, non-controlled rents actually fell month over month. That is a very real sign of economic contraction, because the rental housing market is a place where the rules of supply and demand apply most forcibly.

For almost 20 years, Bermuda has seen housing demand exceed supply. Now it would appear that supply has caught up, and now exceeds demand. In part that is because of the building that has taken place in both the public and private sectors, but anecdotal evidence suggests that more people are leaving Bermuda than are coming, and as a result prices are falling.

That's good news for tenants, but not for landlords and developers, some of whom will have borrowed and built on the assumption that they will get a certain level of rent which may now be out of reach. So that could lead to some level of credit problems, and bears watching. Unfortunately, employment figures will still not be available for some time, but employment in 2008 was virtually flat and it is a certainty that employment will have fallen in 2009. The only question is by how much.

Certainly, the first quarter economic figures released recently were grim. Tourism arrivals and spending were down, new company formations were low and the number of mutual funds registered plummeted.

The construction industry remains the area of greatest concern in the domestic economy. Several major buildings in Hamilton are close to completion. There are few office buildings in the pipeline and only the Park Hyatt project in St. George's seems likely to break ground in 2010 – and even there, planning, leases and finances are not yet signed.

Government has been quiet about taking up the slack, although the swimming pool at the National Sports Centre is said to be still on track. And the major problem for Government if it was to spend on infrastructure is how it could borrow the money. It already owes $800 million in debt, has a $200 million guarantee to Butterfield Bank listed as a liability and is also committed to the redevelopment of the hospital, where construction is likely to be a year or more away.

Although the statutory borrowing limit was increased to $1 billion in the 2009-10 Budget, Government already expects to owe $640 million and has another $200 million listed as a liability as a result of the Butterfield Bank liability. So it does not have much room to manoeuvre in terms of additional borrowing, especially if, as seems likely, it is unable to maintain the slim current account surplus it projected in February.

If that's the case, then Bermuda seems likely to be heading for a difficult winter.