Bermuda?s tourism industry is in ?secular decline?, unrelated to the damage caused to it by Hurricane Fabian or the September 11, 2001 terror attacks in the US, according to global financial analysts Standard & Poor?s (S&P).

And the agency says the Island is coming under social pressure because of the limited opportunities for locals in the hospitality sector, combined with the presence of a high-earning economic elite.

Although the latest tourism figures yesterday pointed to an upturn in arrivals, S&P?s findings were related to the longer term, which has seen a downward overall trend in the industry since the late 1980s.

S&P has predicted that the Island?s Gross Domestic Product (GDP) per head, which it rates as third highest in the world, will continue to rise at an annual rate of 2.7 percent, in real terms, this year and next.

And it estimates that inflation, as measured by the Consumer Price Index (CPI), will continue to rise at 3 percent through 2008.

Standard & Poor?s, which is based in New York, is an international provider of financial intelligence and analysis. Among its numerous lines of business, it issues sovereign creditworthiness ratings, for 113 countries. The S&P report, commissioned by the Bermuda Government, upgraded the outlook for the Island from ?stable? to ?positive?, as was revealed last month.

This newspaper has now acquired the full 15-page report, which presents a largely positive assessment of the Island?s economy, tempered by concerns over a lack of diversification.

The report points out the vulnerability of the two mainstays of the economy, saying that a change in tax rules could undermine the international business sector, while a global economic downturn or a crisis of confidence would damage tourism.

?Although the international business sector generates significant foreign exchange and, in S&P?s opinion, will remain buoyant in the near to medium term, Bermuda?s flagging leisure tourism sector leaves its economy increasingly reliant on the international business sector,? the report, compiled by analyst Lisa Schineller, states.

?The downturn in tourism reflects a secular decline, not just attributable to September 11, 2001 or due to the vagaries of hurricane damage, which also hit other island vacation destinations.

?As one of the highest-cost island destinations in the hemisphere, Bermuda is struggling to compete with cheaper, more-temperate Caribbean alternatives that, with more frequent airlifts from North America and Europe, are gaining market share.

?Similarly, with neither a pronounced attraction (like the Atlantis resort in the Bahamas), nor ecotourism (such as in the Republic of Costa Rica), Bermuda finds it increasingly difficult to differentiate itself in the large North American market.

?However, new luxury hotels including the Ritz Carlton and Mandarin Oriental highlight continued interest in Bermuda?s extremely high-end destination. Supposedly six developers are interested in the former Club Med site.?

The analysts also point out the heavy influence of the US economy on Bermuda?s. ?Performance of the US economy is key for Bermuda, as more than 80 percent of air and 90 percent of cruise ship arrivals originate in the US,? the report states.

?The decline in tourism has led to the closure of one-third of Bermuda?s hotel capacity since 1989 and has hurt the heavily protected retail sector.?

The report touched on the importance of tourism in providing employment for less-skilled workers, as well as the social tension resulting from the presence of wealthy executives of the international business world.

?The limited international business jobs available to native Bermudians, coupled with little job growth in the hospitality sector and the fantastic wealth of a few economic elites is creating social pressurealthough this must be put in context,? the S&P report states.

?Bermudian unemployment is significantly lower than that in other off-shore jurisdictions like Barbados, the Bahamas, Malta, and Cyprus, and the Bermudian government is better positioned financially to address the problem than its peers.

?Premier (Ewart) Brown has prioritised the importance of redressing youth unemployment, as well as deficiencies in education and affordable housing. If unchecked, pressures in these areas could place increasing labour constraints on the international business sector.?

Government figures released last month showed the Island?s GDP per capita for 2005 was $76,403 per head ? the highest in the world according to the Central Intelligence Agency World Factbook. S&P has predicted that that figure will be just short of $90,000 by the end of 2008.

The report says the Government?s debt as a percentage of GDP, estimated at 3.6 percent in 2006, is one of the lowest among sovereign states it has analysed.

It also points out that a ?broad public consensus against the establishment of an income tax? is a limiting factor on the revenue that Government can raise.

The danger of inflation is limited by the Bermuda currency?s 35-year-old fixed parity with the US dollar, S&P adds. ?With the dominance of US dollar transactions in the international business and tourism sectors and Bermuda?s dependence on imports (principally from the US), inflation has generally tracked US trends,? the reports states.

?Since a slight up-tick in 2004, owing to public sector wage increases, inflation has run at 3.1 percent per year, and is projected at 3 percent in 2007 and 2008.?