Government's principal economic advisor, Dr. Andrew Brimmer, delivered a sobering prediction yesterday of where the economy may be in the next 12 months. Instead of seeing economic growth of 2.7 percent this year, the economy is expected to contract by about 0.4 percent and will further contract in 2002 by 1.5 percent.

That means that Bermuda is now in recession and could expect it to continue for some time. It should also be recalled that the effects of recession tend to be felt after they have officially ended as people's savings run out and depending on where hiring takes place. In the US, which has enjoyed a decade of growth, the recession is seen, somewhat inaccurately, as a white collar recession.

That is not the case in Bermuda. As Dr. Brimmer predicted, the poorest people in Bermuda are likely to be the hardest hit as the tourism and retail sectors are likely to be the worst affected by the recession. That is because they are the sectors who depend most heavily on the health of the US economy to encourage people to visit and spend money. And they are also the sectors where wages and benefits tend to be the lowest.

There is some irony in the fact that the international business sector, and especially the insurance sector, is on the cusp of a new boom, with as much as $10 billion being injected into new and existing companies. There is a growing perception that the growth of international business is somehow hurting tourism. Nothing could be more fallacious. While it is true that bright young Bermudians are more likely to enter international business than they are the tourism industry today, tourism's problems have much more to do with high prices, ageing physical plants, inadequate levels of service and fierce international competition than international business.

Indeed, without international business, the tourism business would be in even worse shape. As the recession looms, Government must think about how it can make tourism competitive again and it needs to look at why international business is successful in order to help to put it back on its feet. Low taxes, a high degree of self-regulation, first class infrastructure and location are the keys to the international business sector's success.

The hotels and the tourism industry face numerous taxes, layers of bureaucracy within Government and the unions, and inadequate infrastructure. Government has, through the Hotels Concession Act, done something to improve hotels' infrastructure. It has tried to improve "external" infrastructure through transport initiatives like the fast ferries and the central dispatch system. Similarly, efforts like the jazz festival should improve the infrastructure as well.

But much more needs to be done. Tax cuts in areas like hotel occupancy tax and departure tax and Customs duty and employment tax for tourism-related businesses would go a long way to making Bermuda more competitive.

Service and training initiatives similar to those discussed at the recent tourism forum over the winter months would help too. And a wage freeze in tourism related businesses - from the boss to the cleaner - would help now too. These are not easy decisions to make when the Government is already facing shortfalls in tax revenue. But the choice is to forego some tax revenue in the short term or to pay out millions of dollars in social and housing assistance if tourism's "death spiral", to borrow the phrase first coined by Tourism Minister David Allen, is not reversed.

This is not a question of the tourism industry not pulling its weight as a contributor to the public purse. This is a question of saving an industry which is at death's door. And Bermuda has too much potential as a tourism destination for that to be allowed to happen.