The Bermuda Government's estimates of economic growth achieved last year are "too optimistic", according to a report by top analysts.

The Economic Intelligence Unit (EIU) said it had lowered its 2008 growth forecast for the Island from 2.4 percent to 1.9 percent because of the impact of the global slowdown on the Island. Full-year data has yet to be released.

In its National Economic Report, published in February, the Ministry of Finance estimated 2008 gross domestic product (GDP) growth of between two and 2.5 percent. And yesterday the Ministry stuck to its guns.

"However, official projections look too optimistic," the EIU report states. "Trade data to the third quarter of 2008 show a collapse in import spending on top of nine months of falling retail sales and plummeting tourist numbers. The financial services sector is also suffering from rising global risk aversion."

The Ministry of Finance last night explained the reasoning behind maintaining the 2008 growth forecast of two to 2.5 percent that it initially made last July.

"Despite moderate retail sales performance and the disappointing performance of the tourism sector, other sectors of the economy performed reasonably well under difficult circumstances," a statement from the Finance Ministry said.

"For example the construction industry remained very active during 2008. Based on information provided by the Department of Statistics the estimated value of work put in place over that time period increased by 20.7 percent.

"The dollar value of the work put in place increased from $330.2 million in 2007 to $398.7 million in 2008. The value of new projects started rose by 3.5% from $184.5 million to $190.9 million.

"Also during 2008, 1,032 new exempted companies were incorporated which included 40 new reinsurers. Although these numbers were down compared to 2007, this decrease is indicative of the general incorporation trends in the industry worldwide, and reflects the soft market conditions and global economic challenges which dominated most of 2008.

"Overall in 2008 it appears that the Bermuda economy fared better than most other economies around the world."

But Bob Richards, Shadow Finance Minister, said that the EIU's figures for GDP backed up what he had been saying after the Budget in February that Government's estimates were "pie in the sky".

"They seem to agree with what I said in February that the Government estimates were wishful thinking rather than a real estimate," the United Bermuda Party MP said.

"The revenues that flow from its (Government) estimates were just not valid.

"It is good that someone non-political from outside Bermuda has looked at this and come to the same conclusion as I did."

And he believes events will unfold within the economy in due course, with the construction industry bubble expected to burst soon and international business and tourism already struggling.

"It does not take a genius to work out what is happening," he said.

In February, Finance Minister Paula Cox estimated negative growth of between one and 1.5 percent for 2009. The EIU agrees there will be economic contraction.

"Uncertainty for investors arising from the global credit squeeze and the defection of dozens of international companies domiciled in Bermuda to other low-tax locations is set to undermine growth prospects further in 2009," the EIU stated.

The report said the international business sector contributed more than a quarter of Bermuda's GDP in 2007. The tourism sector would also be hit by the recession in the US — the source of 70 percent of the Island's visitors.

"Higher unemployment levels are now projected as a result of weakening tourism flows and an expected slowdown in construction activity," the EIU said.

"Job losses are already being reported in financial services, telecommunications and tourism, and retail sales fell in January, by 4.3 percent year on year, the ninth consecutive month of a fall in the retail sales index.

"Given the marked downturn already apparent in the key sectors that drive the economy, coupled with the likelihood that the global recession will continue to have a negative impact on Bermuda's economy in 2009, a period of economic contraction is likely."

The Finance Ministry said it had highlighted in the National Economic Report the same trends seen by the EIU analysts, leading to the negative growth projection for this year.

These included slower growth in external and domestic sectors of Bermuda's economy and potential flat performance or downturn in visitor arrivals. Slower growth of international business is also expected and moderate GDP growth over the next two to three years.

"Internally, the Ministry of Finance has marshalled all resources at Government's disposal for the implementation of economic and financial contingency plans should it become necessary.

"The Ministry continues to vigilantly monitor the global economic conditions."