IT doesn’t seem fair, really. Here we are with the biggest and most successful finance industry of all three Crown Dependencies, and it looks like we are the only one about to go into recession. That’s if we’re not there already.

The Isle of Man, which some of us have looked down on for years, is predicting that its economy will grow by about 2.5% this year. Even Guernsey, with its deep financial problems, is expecting the economy to just about stand still this year or, at worst, suffer ‘a slight contraction’, according to last week’s Budget.

In contrast, the economists are even more confident than they were earlier in the year that Jersey’s economy will shrink by between four and six per cent in 2009. That’s despite the increasing buoyancy and signs of growth in virtually every other country surrounding us.

It is doubly unfair, of course, that our economy appears so weak when we are also the only Crown Dependency not to have suffered from the collapse of an Icelandic bank.

The experts could be wrong, of course, and it wouldn’t be the first time in the past couple of years that economists have mis-read the evidence. But we have spent a lot of money (certainly more than Guernsey) in collecting data and having it analysed by leading independent economists who are as sure as they can be about something this complex. Their verdict is that most of the pain is still to come for us.

Indeed, they are at a loss to understand why Guernsey appears to be more confident that it will escape recession entirely. The make-up of the economies is very similar and both banking industries, which are critical for the growth of the entire finance sector, are suffering badly from very low interest rates.

So perhaps its Guernsey’s experts who are wrong and our near neighbour will indeed suffer the same downturn predicted for Jersey.
There might also be a problem with economic definitions, and it might even be that politics has as much to do with it as economics. Despite its serious financial problems, including an over-reliance on income tax and an emerging structural deficit, Guernsey still manages to express more confidence than Jersey.

Take unemployment, for example. Jersey worries about a significant increase in people looking for jobs, and it’s a crisis. Guernsey is also suffering from higher levels of unemployment, but it prefers to concentrate on the fact that the percentage without work is still very low, and is indeed only back to the levels of the mid-1990s.

Even tourism has had a buoyant year in Guernsey, according to the Budget report, in dramatic contrast to the gloom in Jersey’s tourism industry.

So perhaps there is a difference in attitude which is at least as marked as the difference in economic performance.

Certainly Guernsey has its problems. Last week’s Budget report didn’t try to tackle the longer-term issues, such as zero-ten, corporate tax and the £30m a year deficit. In the meantime, it merely adjusted duty on tobacco, spirits, fuel and property. That brought its tax on an average packet of cigarettes closer to, although still lower than, Jersey’s.

Guernsey has also decided against increasing duty on beer and wines in order to remain competitive with Jersey – a consideration that is rarely mentioned in Jersey as we don’t seem to worry about the tourists too much.

However, the extent of Guernsey’s fiscal problems is shown by the fact that the total revenue it will receive from Customs duties and document duty this year (£41m) will only just cover what it has to pay teachers and teachers’ assistants (£39m). It also has few other sources of income other than a dangerous reliance on income tax.

At least Jersey has grasped this particular nettle by introducing the much-loved GST, which has certainly given the Island’s policymakers more flexibility. So far, Guernsey has avoided this unpopular move.

Prudence in the past is another reason why Jersey should be looking to the future with much more confidence than it appears to be. We have been able to build up considerable reserves, which should help see us through the recession. We also have money to pay for a fiscal stimulus package, which should save jobs. Guernsey has neither.

Guernsey has also got considerable reserves, although it is committed to using at least a proportion of them to help to pay for public services during the zero-ten transition. There are no proposals for fiscal stimulus, presumably because it doesn’t think it needs it.
So who is better off?

Perhaps an even more telling comparison for Jersey is with the other Crown Dependency. The Isle of Man has long been a competitor of Jersey’s in financial services but has never developed the strength or depth of Jersey’s finance sector. So where is the Isle of Man’s 2.5 per cent growth coming from this year, while we watch our economy shrink by at least four per cent?

The basic reason is that the Manx economy is much more diversified than Jersey’s. While Jersey observers have tended to laugh at the Isle of Man’s efforts to develop a space industry, for example, this currently contributes about £25m a year to the economy. Manufacturing employs 3,000 people (the population is now very similar in size to Jersey’s), e-gaming is growing substantially (while Jersey continues to talk about it) and 1,000 ships and 150 aircraft are registered in the Isle of Man (something else that Jersey talks about).

Growth in these areas has produced a much more balanced economy, with the proportion of the economy coming from financial services, down from 45% to 36%. Jersey’s is still over 50%, and some observers believe that the Island is even more reliant than that on the finance sector. So it’s not surprising that the performance of one dominant industry affects the performance of the whole economy.

So I’m not sure what we can learn from Guernsey’s experiences in fending off the recession, except perhaps to emphasis the need to take full advantage of our strengths in addition to bemoaning our weaknesses. But it’s pretty obvious what we can learn from the Isle of Man.

Peter Body is editor of Business Brief magazine