Bermuda's economy will continue to contract in the year 2002-03 and the divide between the shrinking tourism sector and the growth of international business will continue to widen.

Real gross domestic product (GDP), which measures the total output of a country adjusted for inflation, for 2001 went into negative figures and was yesterday reported at -0.2 percent or $3.02 billion (according to preliminary data) by Minister of Finance Eugene Cox.

And Government forecast in its Economic Review, published yesterday, and in the Budget, that GDP will go down by 1.5 percent to $2.97 billion in 2002 .

It added that the economy's fortunes depend on the recovery of the United States' economy, and if the recession lasts longer, then the Island will be negatively affected and GDP may fall further.

"If the recession in the United States lasts longer than projected, the adverse impact on Bermuda will be greater than currently anticipated. On the other hand, there is also a change of a smaller contraction in the overall economy if growth sectors such as financial services perform exceptionally well," Mr. Cox told the House of Assembly.

Inflation in 2001 stood at 2.9 percent, and is forecast to stay under three percent during 2002-03.

The total number of jobs fell by 1.5 percent in 2001, with declines in manufacturing, utilities, retail, hospitality and public administration. But there were job increases in agriculture, construction, business services and international business.

Mr. Cox said the outlook for 2002 remained mixed.

He said: "Industry specific performance and prospects range from projected declines to no growth at all, to fairly robust levels of economic activity."

The Economic Review's outlook for the year ahead said: "The economic dichotomy of a successful international business sector and a struggling tourism sector will continue to place strain on Bermuda's workforce.

"Falling employment in tourism and a shortage of skilled professionals in international business will continue to challenge the educational, training and social welfare institutions in Bermuda."

The document projected a decline in tourism, and a resulting decline in visitor expenditure of up to 15 percent and an increase in international business, with this sector expanding at a rate of growth of six to ten percent.

But the forecast said things could get better if the US economy recovers and tourism picks up and the boom in international business adds to this sector.

The forecast added: "In the last few years the major risk to the economic forecast has been to the downside as the decade-long American economic expansion became overextended with a build-up of financial imbalances and inflated assets values.

"In the current forecast, there is less downside risk and greater likelihood of better economic performance. Should the US economy recover in the middle of the year American tourists may be more inclined to visit the Island's upgraded hotels and tourism would not decline at the forecast rate of 15 percent.

"In this case the strength of international business, business services and construction would reduce the size of the contraction of the economy.

"Expanding international business activities also have a positive effect on the tourism industry with their use of hotels and restaurants.

"The major downside risk to the forecast is the threat of another terrorist attack that reduces tourists' confidence that they can travel safely."