Finance Minister Eugene Cox on Friday predicted “modest” growth in the local economy through the next year and said fears of an economic contraction after the September 11 terrorist attacks had not materialised.

But Opposition Leader and Shadow Finance Minister Grant Gibbons said Mr. Cox gave an incomplete picture of the economy in his statement to the House Friday, saying Bermuda is now too dependent on international business because of poor tourism performance and Government's “failure” to “attract diversified new business”. In a statement issued yesterday, Dr. Gibbons said that Mr. Cox was “selective” in his use of statistics to present a “picture of an economy that is healthier than the facts suggest”.

Mr. Cox, speaking in the House of Assembly, predicted growth at a rate of one-half to one percent through 2003. And he chided critics who had feared the worst when the balance of payments showed a current account deficit for the first two quarters.

The Minister said he had forecast, in the last budget, a decline in real gross domestic product (GDP) of about 1.5 percent but activity in the financial services and construction sectors, as well as modest rise in tourist arrivals and expenditures, meant the Island was ahead of those “conservative” predictions.

Mr. Cox said his forecast had been made in the “uncertain times following September 11”, and took into account the recession in the US and the weak outlook for tourism world wide.

Although he said it was still not clear whether the US economy would “expand vigorously or stagnate” in the coming year, Mr. Cox said there were signs that Bermuda was and would continue to hold its head above water. Looking at economic indicators, Mr. Cox said local consumer spending although “relatively flat” this year, was better than the decline in expenditures that had been forecast.

Mr. Cox attributed steady consumer figures to a growth in employment income - four percent growth, according to Government statistics earlier in the year - and the “less than anticipated” slowdown in tourism. He said visitor arrivals through September 30 showed an increase of 3.5 percent over the same period last year. And Mr. Cox added that the Quarterly Bulletin of Statistics indicated visitor expenditure was up 4.7 percent through the first half of the year.

There was also a healthy level spending from the international business sector and Mr. Cox predicted the sector would meet forecasts for a six percent rate of growth in local expenditure. Although there was a reduction in the number of new company incorporations this year - compared to the “pace” set in 2000 and 2001 - Mr. Cox said ‘quality not quantity' was the key consideration.

And in an oblique reference to the “corporate inversion” controversy, Mr. Cox said the Island benefited most from those companies that established a physical presence, and that “Bermuda must remain ever vigilant to maintain its sterling international reputation”.

And he hit out at critics who he said had assumed the worst for the economy after a deficit earlier in the year: “The unusual balance of payments current account deficit in (the first) two quarters was caused by the sudden drop in tourist expenditures following 9/11 and large swings in the investment income account that were caused by volatile financial markets.

He continued: “Events of this nature are rare and the concerns expressed by some observers over the impact of the transient quarterly deficits were ill founded and greatly over exaggerated.”

Dr. Gibbons said the rate of growth of the international business sector has actually declined over two years, as has the value of new construction projects when comparing the first quarter of 2001 to the first quarter of this year.

“Mr. Cox says there were 520 new exempted company registrations in the first half of 2002 with the total number on the register at the end of the second quarter at 11,806. However, he fails to note that there were over 12,000 exempted companies on the register in the first quarter of 2002 and some 12,125 at the end of the second quarter 2001. So the total number of exempted companies on the register has actually declined in the last year,” Dr. Gibbons noted.

“The 520 new exempted company registrations also represent a decline of 23% below the first half of 2001 and some 43 percent below the comparable number in 2000. It's clear that the overall growth of our international business sector has moderated appreciably in the last two years, and whether the Minister agrees or not, there is cause for concern.”

He added: “Through selective use of statistics, Mr. Cox also presents an incomplete picture in other areas. He notes that there was a 20.9 percent surge in activity during the first quarter for the value of work completed by the construction industry. However, he fails to point out that another important measure-the value of new construction projects started in the quarter-dropped significantly from $94.5 million in first quarter 2001 to $5.8 million in first quarter 2002.”

And Mr. Cox has also failed to mention, the statement continues, that the current account surplus for the first half of 2001 was at over $121 million “more than ten times higher than this year's surplus”.

“While the surplus on current account balance has not reached a crisis, the public should be aware that the balance of payments surplus on current account peaked in 1999 and has dropped significantly every year since then, primarily as a result of the poor tourism performance by the Smith government,” the statement continues.

“Sadly, through September 2002, important air visitor arrivals are still down from 2001, the worst tourism year since the early 1980s.”

The economy has “structurally weakened and is now in a position where it is much less able to withstand further shocks, such as the potential economic fallout from a US war with Iraq”.

Visitor expenditure has declined by over $240 million over the past four years, according to Dr. Gibbons. But taxes have “increased appreciably” as has total government spending.

“And our balance of payments surplus on current account has weakened dramatically. Due to the Smith Government's failure with tourism and its inability to attract diversified new business, Bermuda has developed an unhealthy dependency on our international business sector. Today even the middle class is having a hard time making ends meet. And the lives of those truly in need have not improved in any measurable way since 1998. Managing our economy by treading water just isn't good enough in the 21st century.”