External and internal factors are to account for this slowdown as critical foreign exchange-earning sectors failed to generate the activity needed to boost the gross domestic product (GDP).

Perhaps the critical spur for Barbados' current condition is the fallout from the September 11, 2001 terrorist attack on the United States that affected the tourism industry which contracted by an estimated 9.5 per cent.

Tourism was a key component in the growth of previous years directly contributing approximately 11 per cent to the GDP and at the same time producing a ripple effect throughout the other sectors such as retail and manufacturing.

In the construction sector, another reason for the previous growth, activity slowed during the first half of 2002 by an estimated 8.3 per cent as several private sector projects came to an end or were suspended.

Again, weak performances in this sector resulted in decreased output in mining and quarrying, wholesale and other related businesses; the net result was a loss of 2,200 jobs in a workforce of 137,000 persons.

This state of affairs presents the first real test for Prime Minister Owen Arthur who assumed the reins of government in 1994 and during the intervening years saw economic activity expanding at an annualised rate of 3.2 per cent.

Mr. Arthur admitted that the current global situation has presented some challenges for his administration.

"Many people don't understand, for instance, why there were no layoffs in the tourism sector. But the government has provided income support to the industry in the amount of Bds$30 million to compensate for loss income after September 11. And this is not enough," he said recently in his office at Government Headquarters.

To his credit, the government has moved swiftly to hold two national consultations on the economy since September 11, involving labour, the private sector and non-governmental organisations.

Many are looking forward to his annual economic statement - due sometime in the next few weeks - to see what concrete measures the government will be taking to counteract the effects of a slumping world economy and indifferent tourism sector.

While inflation has remained constant at 2.6 per cent due mostly to low international oil prices, the slowdown in economic activity has even affected the government's fiscal position which deteriorated sharply in the first half of 2002, with the fiscal deficit growing by Bds$97M to reach a figure of Bds$155M.

Prime Minister Arthur has pledged to use the island's foreign reserves, which last year stood at Bds$1.7B, to weather this gloomy economic forecast but the net international reserve is not infinite as reports from the Central Bank show.

The island recorded the lowest second quarter expansion since 1993 with the NIR growing by only Bds$71.5M, the only positive development being that imports were down placing less pressure on the foreign reserves.

Retailers, too, are complaining that the Barbadian consumer is spending less than before, possibly concerned about how long this economic downturn will last. Purchases of big-ticket items such as cars, household appliances and other luxury goods are off by as much as 15 per cent in some cases.

But the real test of consumer confidence will come during the Christmas period when significant purchases of these items are made.

Partly as a consequence of a drop-off in consumer spending, domestic deposits in the commercial banking sector rose by 10.1 per cent, or Bds$396.1M and there was stagnation in private sector credit.