To date, Bermuda has proven to be relatively resilient to the sub-prime credit crisis in the US and the associated weakness of western economies.

To be sure, tourism arrivals have dropped and the sector has been rocked by the collapse of Zoom Airlines.

Other economic indicators, from balance of payments statistics to retail sales, have also been weaker than they were a year earlier.

And no one would pretend that people are not feeling increasingly stretched as a result of high prices.

That is offset, to some degree, by anecdotal evidence that real estate prices and rents are flattening, but that does not make it much easier to buy groceries or to pay for gas.

However, the Island has not seen the redundancies and business closures normally associated with a recession. A stranger coming to Bermuda would be hard pressed, looking around and unaware of the economic currents under the surface, to say that this is a country going through hard times.

That may be about to change. XL Capital's restructuring was the first salvo. Now, with global stock markets in turmoil, first over the entry into bankruptcy protection of Lehman Brothers and now with the US government's take over of insurance giant AIG, things could get a lot worse.

AIG's difficulties should be of the greatest concern. As a company it employs around 200 people in Bermuda. And as a business, it writes insurance with much of the rest of the Bermuda market.

On a global scale, it is so intertwined with the financial system that its collapse would have caused a systemic crisis. That's why the US Government has bailed it out.

What does this have to do with Bermuda? First, Bermuda is a financial centre and the world's financial system is going through the greatest upheaval it has experienced since at least 1987, when the Island had far less exposure to it.

Second, the Island is poorly positioned to withstand whatever downturn may come. Insurers generally were facing a soft market before the latest events. These may now worsen.

International companies, regardless of any soothing words they may say publicly, are also unhappy with the Island's general direction. They don't like the restrictive immigration policies. It is an expensive place to operate, and increasingly they are not creating jobs in Bermuda, opting instead for everywhere from Halifax to Zug to Hyderabad.

Recently, the chief executive officer of Brit Insurance, which is contemplating moving its domicile from the UK, did not say Bermuda was the best choice. That's a major shift from a couple of years ago when Bermuda was the only choice.

Hamilton in particular and Bermuda generally have become dependent on international business. Nowhere is that more evident than in the construction sector which has been the main driver of the domestic economy in the last four or five years.

Although there are an impressive number of projects underway in Hamilton, it may well be that little will follow after that, especially if international business growth slows.

And if Premier Dr. Ewart Brown's "platinum period" hotel projects don't come on, then there won't be much construction work around. That could result in a major slowdown for the economy, comparable to the recession of the early 1990s.

But unlike then, when international business held up reasonably well as tourism suffered a hammer blow, there isn't much to offset the declines.

Worse, Government's own size has ballooned in the last decade, and requires $1 billion or more to keep it functioning. This has mostly been done on the back of international business growth and especially the payroll tax derived from salaries in the sector. What happens if that slows down or shrinks, especially with free health care for seniors, which is certain to be enormously expensive, promised for next year, is anyone's guess.

Of course, economics is a famously uncertain science, and the Bermuda economy has shown remarkable resilience over the years, most especially after September 11, 2001.

But all the signs are that this time it will be different.