The Isle of Man economy is currently enjoying its twenty sixth consecutive year of growth. The period since the mid-90’s witnessed a particularly impressive economic performance with real growth averaging almost 10% p.a. between 1997 and 2002 and although there followed a minor slowdown, the economy was performing with a growth rate of around 8%p.a. prior to the onset of the global financial crisis.

The key sectors in generating this performance have been financial services (this sector has grown by around two-thirds in the last six years) and professional services (growth of 50%). Banking generates typically around one fifth of the Island’s gross domestic product, with the rest of the finance industry adding another 15 to 20%. In the last few years new economic activities have been developed, such as with aircraft registration and most significantly, e-gaming and other areas of e-commerce.

One consequence of the economy’s performance has been an ongoing strengthening of public finances. Over the last eight years alone Treasury’s receipts more than doubled to stand at almost £0.6bn in 2008/9. An important element of the Island’s fiscal strength is the long established and self imposed legislative requirement that Government must budget for a surplus in respect of its annual revenue spending. Whilst meeting this requirement Government has continued to invest in developing and updating the Island’s infrastructure for economic as well as social benefit. This overall strength in the public finances has been recognised in the continued triple A ratings from credit agencies S&P and Moodys.

The Island’s unemployment rate had been below 1½% for nearly a decade, but since the autumn of 2008 it has risen to stand now (February 2010) at 2.3% (of an economically active population of nearly 42,000). Recruitment for employers is considerably eased through the freedom to attract and transfer personnel from off-Island. Although the Island operates a work permit system, it does so liberally, as evidenced in the information that shows around 11,000 permits being granted annually and refusals running at below 100 a year.

The ability to bring in labour from outside is a key factor in constraining local wage pressures. Increases in mortgage rates and energy prices conspired to push retail price inflation on the Island to over 6% in 2008, but with the falls in these same items the current rate (February 2010) is 4.8%. Expectations are for the rate to remain very low in the short term in the low interest rate environment and with commodities prices now relatively subdued. The combination of full employment, low mortgage rates, rising disposable incomes and an expanding population has supported local house prices over the last year but prevailing wider economic conditions and some restrictions evident in local credit availability may well see a reversal of house price trends over the course of 2010.