Bermuda's economic performance and outlook will be dependent on external as well as internal factors. To a very significant extent the external factors are dependent on conditions in our major trading partner, the United States. During the Senate debate last spring I sounded a warning bell to beware of 2007, economically speaking. Now that 2007 is upon us what is the outlook now? While the stock market did well in 2006, most of the leading economic indicators point to a slowdown in corporate profits and in GDP. The weakness in US housing is continuing and that weakness has spread to other unrelated sectors like autos. The strength in the stock market was a result of a belief that the economy is headed for a "soft landing", with no further increases in interest rates instead of a dreaded "hard landing" with higher interest rates resulting in a full blown recession. But a soft landing is not assured.

The US dollar is likely to remain weak, if not weaker, as the gap between US interest rates and European and UK rates is likely to widen. This may cause more Europeans to visit the US and less Americans to visit Europe. As a dollar-based economy this exchange rate situation may have some benefit to us because we will appear cheaper compared to Europe. On the other hand US consumer spending is likely to be soft which may have a negative impact on our visitor industry.

The US airline industry remains in critical condition and that will not help Bermuda in its efforts to obtain lower fares to our Island. US airlines need to consolidate and it is not clear whether airline consolidation will be better for Bermuda or not.

Fortunately, the insurance cycle is not closely correlated with the overall economic cycle and the underlying tone of the offshore insurance/reinsurance market appears to be quite solid and of course this augers well for Bermuda.

The critical economic issues facing Bermuda for 2007 are also internal. For many months I have been like a voice crying out in the wilderness on the issue of overheating of our economy.

Simply put, the Bermuda Government has sat on its hands and let our economy overheat, particularly in the construction sector. This has resulted in, on the one hand, a bonanza in payroll taxes for Government coffers to finance their spending excesses, but, on the other hand, it has had a disastrous impact for the ordinary Bermudian family, the very same people the Government claims to represent.

What is economic overheating? Overheating is when an economy grows faster than its natural capacity to grow; sort of like exceeding the economic speed limit. When you exceed the economic speed limit, it generally causes inflation. Overheating causes Bermuda to have to import labour by the thousands, thus putting more pressure on housing. We have more imported workers on this Island than ever before. Look at any construction site, you'll see what I mean.

Surges in inflation are often not spread evenly across all sectors, it can sometimes be concentrated in specific sectors. In our case this overheating is concentrated in the construction and real estate sectors and has driven up the cost of shelter to unprecedented levels in this country and, of course, it has impacted lower income people the most. Skyrocketing rents are a direct result of economic overheating.

Moreover, the construction sector is increasing in the supply of housing in the high end, not where it is most needed.

Sky-high rents turn people who were just about making it, into people who can't make it.

It forces lower income people into poverty and homelessness. Many workers' incomes are tied to movements in the Consumer Price Index, but actual costs of shelter are rising more than 325 percent faster than the overall CPI. So after the rent is paid, there is much less household money available to spend on other necessities.

A major factor why there is a shortage in affordable housing is because that which was once affordable has become unaffordable as the cost of shelter rises much faster than people's incomes. The dilemma these people face is directly derived from the absence of proper economic management and planning by the Government.

Now, on top of all this, an avalanche of new hotel development has been recently unveiled. Some of these developments are of unprecedented size, complexity and cost.

There are six major developments, five along a five-mile stretch of the South Shore between Paget and the Gibbs Hill and one in Hamilton. A back of the envelope reckoning suggests an aggregate investment of well over $1 billion. Talk about overheating! While we need investment in visitor infrastructure, these projects taken together will transform Bermuda from being like a car with a steaming radiator into a fireball. Incidentally, the carrot for all these projects appears to be Special Development Orders. But this paper is about economics, not the environment. However, in the final analysis, the environment and economics are all tied up into something called Sustainable Development. That whole concept seems to have been "deep sixed" by the new leadership. Clearly, all this development is not sustainable.

Questions arise like, "Where is the labour coming from to build these hotels?" "Where are the staff to run them coming from?" "What impact will these developments have on rents, property prices, and general costs of living and doing business in Bermuda?"

Way back in the late 1960s when the Southampton Princess was being planned the Government of the day required Mr. D.K. Ludwig to open his new hotel in phases because to open such a massive hotel all at once would have had too great an impact on local labour markets and service industries. That was economic planning.

Today instead of economic planning, what we have can best be described by the words of a famous US Navy captain who declared, "Damn the torpedoes, full speed ahead!" I don't believe we can afford to take such a cavalier attitude towards Bermuda's future.

Bermuda's economy is small and upwards of $1billion of investment can destabilise our economy pretty quickly. Before any naysayers point out that billions of dollars came to our shores after the September 11 terrorist attacks without a catastrophic effect, it must be clarified that that capital was not invested directly in our local economy and the vast majority of it stayed in the international banking and financial system.

When the Southampton Princess was built our economy was dominated by tourism.

International business was in its infancy. Yet even way back then wise heads knew that there were consequences of large projects, sometimes negative ones. Today we have full employment with an already overheated construction sector. Where are the wise heads today? Where is the economic planning to minimise the inflationary, social and community impact of further overheating this economy?

2007 must be a year when overheating in construction is curbed and these major hotel projects put on a phased basis.

Sen. Richards is a United Bermuda Party Senator and the owner of Bermuda Asset Management Ltd.