For the first time in a long time, the economy is the major area of concern for Bermuda residents, overtaking hardy perennials like crime, housing and education.

That's not surprising, and in a perverse way, it's good news, because it shows that the community is aware of the perils that the world economic crisis pose for the Island.

The inevitable and perhaps prudent response to the continuous stream of bad economic news is to cut spending, to save and to wait for a better day.

From a macro-economic perspective, that may be the worst thing to do, since maintaining trade and spending is the very thing that will enable the economy to grow. But who wants to be the first person to take the risk and be proven wrong?

Wise investors also know that the time to buy is when things seem to be at their worst; the problem now is that no one really knows what the bottom of the economic cycle is.

Still, there are very clear signs that the Bermuda economy is slowing down.

Retail sales figures for November 2008 showed a real (after removing inflation) decline in sales for the ninth time in the first 11 months of 2008. Also down was overseas spending, bucking a long term trend and suggesting people are cutting back.

The latest balance of payments figures saw the Island's surplus increase, showing we are spending less than we are taking in.

On the face of it, that's good news, and certainly, any country would rather have a surplus than a deficit. But the third quarter figures suggest that much of the decline in expenditure was caused by the precipitate and probably impermanent decline in the price of oil, along with a general drop in imports, as opposed to an increase in income.

That also shows weakness in the economy, and may well be exacerbated by the likely drop in investment income in the fourth quarter, when the effects of the financial crisis in October and November are reported.

That that crisis was already starting to hit home last year is shown by the statistics on Bermuda-based investment funds in the three months ending on September 30; the number of funds in Bermuda shrank, while assets under management plunged by 16 percent.

While the vast amounts of money – a little under $200 billion at that time – held by Bermuda-based hedge funds are not directly "in" the Bermuda economy, it is clear that this leg of the international business sector is facing severe difficulties, and that will have ramifications for service providers like banks, accounting firms and law firms as well as on Government revenue. For those funds with a physical presence on the Island, closures and the like will hit all kinds of businesses and individuals, directly and indirectly.

So what's the answer? Consumers are unlikely to open up their wallets at this time, which will result in less demand. Businesses for the most part are in survival mode.

This is when Government needs to take the lead. It needs to ensure there is an adequate safety net for those in financial difficulty.

It also needs to prime the economic pump. preferably through capital projects, which will prevent a construction industry bust and will improve the Island's infrastructure.

Because Government does not have huge reserves of cash, this will need to be done through borrowing without breaking the $550 million debt ceiling; estimated borrowing for the current financial year was set at $465 million.

Finally, Government needs to take the lead on making Bermuda more competitive. This may seem to be something in which the private sector should lead, but only Government has tools like the ability to reduce taxes and the size of Government, to lead on wage settlements and to improve education and training that can help Bermuda keep its edge.