Government is expecting the Island's economy to come out of recession and grow by up to one percent in the coming year, after it shrank by an estimated 2.5 percent last year.

According to the outlook for the Ministry of Finance's National Economic Report, tabled in the House of Assembly yesterday, the outlook for the economy is one of "cautious optimism".

Finance Minister Paula Cox spoke of a recovery in 2010, but Shadow Finance Minister Bob Richards said he believed the Government was trying to "wish away a recession they had not anticipated" with an "unreasonably optimistic" economic forecast.

The National Economic Report highlights the damage done to the economy by the downturn, such as a fall in employment of nearly two percent and a 3.1 percent fall in employment income.

The number of international companies on the Island fell by 1.5 percent, tourism was hit by a 10.5 percent decrease in air arrivals, and the construction sector is in decline.

However, the report's conclusion was relatively upbeat.

"The expectant mood is stemming from the fact that the US economy and indeed many of the larger economies around the world are beginning to exhibit signs that their individual recessions are over," the report states.

"Once consumers in the US regain their confidence and start to spend money again, Bermuda will reap the benefits. It is anticipated that just as Bermuda followed the US into recession, the US economic recovery will lead to a recovery in Bermuda."

The hospitality industry would benefit from an upturn in the US and extra flights from Canada, and the Island's hotel industry would begin to turn around in the second half of this year, the report said.

The report expects the international business sector to build on last year's strong results and to consolidate in 2010, becoming stronger in 2011.

But it sees a less rosy outlook for construction.

"There is likely to be a lull in construction through the first three quarters of 2010, as many of the major projects in the construction sector are nearing completion," the report states.

"The Government will continue to provide stimulus to this sector with projects such as the Hamilton Police Station and Magistrates' Court continuing through to the end of 2010 and various ongoing housing initiatives.

"Further stimulus will be added as work is anticipated to begin on the new hospital late in 2010 which should create several jobs in the construction industry for the duration of the project."

The report concludes: "If the recovery in the US and other major economies around the world is sustained, Bermuda's economy should begin to see positive GDP growth in the latter half of 2010 with a return to stronger growth in 2011.

"For 2010, GDP growth is estimated to be between 0.5 percent and one percent in real terms."

Mr. Richards did not expect recovery to come so quickly.

"I don't believe the recession is over in Bermuda, or in the US and therefore it's going to be a difficult year," Mr. Richards said.

"The Minister's comments about a recovery in 2010 are premature. Historically, Bermuda has had a lag of a year or more relative to recoveries in the US."

Although GDP numbers had indicated the start of recovery in the US, Mr. Richards said much of that was down to stimulus measures taken by the US Government.

"For us, it boils down to two things: US consumers are still not spending much, so they're not likely to be spending much on vacations," he said.

"Secondly, because consumers are not spending and so many Americans are out of work, tax revenues for the US will be weak — therefore the tax man will be looking to collect more taxes from places like Bermuda.

"The uncertainty that creates, particularly for the re/insurance sector, is likely to continue for 2010. That means the reinsurance sector are not likely to be opening their wallets and so you won't see much new capital formation here."

The report highlights how retailers suffered in 2009, as gross turnover fell by nearly four percent to $1.1 billion.

Sales fell 13.9 percent at apparel stores, 10.3 percent at motor vehicle distributors, 11.3 percent at service stations and 7.1 percent at building supply stores.

Even overseas purchases declared by returning residents fell, but only by 0.3 percent to $73.2 million.

The analysis of the construction industry provided stark reading. The value of work put in place through the first nine months of 2009 fell 20.3 percent to $260.6 million. Ominously for the future, the value of new projects started during this period fell by nearly half to $150.3 million.

International business continued to be the economy's main engine, directly accounting for around a quarter of GDP.

However, there were 239 fewer international companies registered on the Island at the end of 2009 than a year earlier. A total of 629 new exempted companies incorporated last year, a fall of almost 39 percent compared to the 1,030 last year.

The sector also lost 328 jobs during 2009 — a 6.9 percent fall — reducing the total employed in international business to 4,433.

Overall, the number of jobs in the economy fell by 711 last year to 39,502 — a decline of 1.8 percent.

Tourism was also hit. Although the newly built Heritage Wharf cruise ship dock at Dockyard helped cruise ship visitor numbers to rise 11.2 percent to 318,528, the number of air arrivals fell 10.5 percent to 235,860.

Hotel occupancy rates averaged 51.1 percent through the year, a year-on-year decline of 13.4 percent. The largest hotels proved the most effective at filling their rooms, a reversal of the trend of recent years.