Contrary to the claim made by US Consul General Gregory Slayton last week, Bermuda is not "technically" in a recession, Finance Minister Paula Cox has countered.

Ms Cox said that international business, the "mainstay" of the economy, saw two strong quarters of growth to start 2008 and "we expect this sector will remain strong as Bermuda is still viewed as a quality player in the global arena".

"While official figures are not yet published, the labour indicators and economic activity suggest that we are not technically in a recession," she said.

But it may simply be too early to determine whether Bermuda is in a recession. Recessions can often only be confirmed after they have happened. By traditional definition, a recession is two successive quarters of negative growth in gross domestic product.

Bermuda College economics lecturer Craig Simmons said data to support whether the Island is currently in a recession may not be available till 2010. In the absence of that data, however, Mr. Simmons suggested retail sales data (from the Government's Retail Sales Index, which is released monthly), could be used as a "proxy" for GDP figures. Going by the figures released over the last six months, a case could be made for recession, he said.

"These data are released on a two-month delay," Mr. Simmons said. "In each of the last six months, with the exception of April, RSI has decreased."

Mr. Simmons cautioned, however, that overseas spending by returning residents had increased in each of the last six months, except April and July when it was flat, which makes spending alone a less than reliable indicator.

In the face of a recession, however, Mr. Simmons said Government should act with its wallet to keep the Island's economy stimulated. "Government spending should run counter to the private sector," he said. "So when private sector spending is growing, government spending should be contracting and the government budget would run a surplus. Now that private spending is shrinking, government should be increasing its spending to compensate and stimulate the economy."

He added: "Whether the increase in Government spending should take the form of a tax cut or an increase in say, capital spending, is subject to debate. I would favour income supplements to families below the poverty line and little change to the proposed capital spending on infrastructure, improvements to the software-side of education — curriculum and teaching; as well as improvements to waste management, policing and courts, and Club Med remediation."

Chamber of Commerce president Philip Barnett also suggested spending as a recession solution, urging residents to dig into their pockets. "The US is absolutely in a recession and while the technical terms of a recession may not be met where Bermuda is concerned, it is clear people are becoming very wary of spending their money," he said. "The Chamber would encourage Bermudians to spend locally to support local businesses which would in turn help Bermuda to weather any global economic situation.

"They say the only way to get out of recession is to spend your way out of it. So people shouldn't change their spending habits. If you need to buy your child a pair of shoes, then buy them. If you want to go out for dinner, then do so."

Mr. Barnett added: "It's worth noting that Bermuda's banks are well capitalised and that the real estate market is still holding. Are we affected by the current US economic issues? Absolutely! But if we don't panic we will be in a better position than other jurisdictions."

Minister Cox also defended Government's record on spending to date in the face of Opposition criticism from shadow finance minister E.T. (Bob) Richards who said Government had "spent like a drunken sailor while the economy has been very strong, helping it to overheat".

"First and foremost this administration has a proven track record of effective management of the economy and business environment," she said. "This has been endorsed by credit rating agencies such as Moody's Investor Services Standard and Poors and Fitch Ratings. As recent as August 2008 Fitch Ratings endorsed this fact.

"This Government's debt management policy has also continually received strong reviews from credit rating agencies such as Moody's Investor Services and Standard and Poors. It is important to note that the gross debt inherited from the former administration was $160 million and remained unchanged until 2005. The borrowing requirement arising from budget deficits is strictly used for investment in hard assets such as public sector plant and equipment, infrastructure and vehicles including bus and ferry fleets, thus providing future long term benefits to the people of Bermuda.

"The reality is that, in most countries, governments face pressure to adopt more and more programmes and hence to increase spending. Bermuda is no different. In general, Government expenditures tend to rise as a percent of GDP. As a percent of GDP this administration's spending has not fluctuated too wildly and has settled in the range of 20-23 percent of GDP, which is far lower that other developed economies."

Minister Cox said Finance has not requested that other Ministries cut back at this time.

"In our role as prudent managers we are constantly reviewing Government's overall performance to ensure that Ministries in the first instance remain within current approved levels," she said. "We are also vigilant in ensuring that the financial impacts for 2008/09 are consistent with our initial debt projections.

"As at August 2008, revenue estimates looked to be on target for 2008/09 and expenditures on operations are consistent with Ministries utilising the ZBB tool to re-prioritise as needed."