Analysis: HK Economy Farewells to Worst, But Still Early to Be Optimistic

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Last updated at: (Beijing Time) Wednesday, March 27, 2002

Analysis: HK Economy Farewells to Worst, But Still Early to Be Optimistic

Hong Kong's economy seems to have weathered the hardest time, yet there are far from enough convincing signs signaling a near-term full recovery. More blue-collar workers will lose their jobs as Hong Kong is restructuring toward a knowledge-based economy and people will hardly feel the economic recovery.

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Worst is over

Hong Kong's economy seems to have weathered the hardest time, yet there are far from enough convincing signs signaling a near-term full recovery.

"February trade data is considerably better than the market had expected and could indicate 'the worst is over'," Nomura economist Pu Yonghao has said.

In February 2002, Hong Kong's total exports of goods, comprising re-exports and domestic exports, decreased by 9.1 percent over a year earlier to 95.3 billion HK dollars (12.2 billion U.S. dollars), after a 12.2 percent year-on-year decline in January, Hong Kong Census and Statistics Department reported Tuesday.

The re-exports dropped by 7.6 percent to 86.7 billion HK dollars (11.1 billion U.S. dollars) in the month, and the domestic exports fell by 21.5 percent to 8.6 billion HK dollars (1.1 billion U.S. dollars).

Nomura and Goldman Sachs had forecast a 13 percent year-on-year decline in total exports while Citibank and National Australia Bank had put the figure at 15 percent and 15.5 percent respectively.

A government spokesman explained that there was a higher base of comparison from February 2001 due to difference in timing of the Lunar New Year Holidays, which fell in January last year but in February this year.

"If not for the higher base, the year-on-year rate of decline in total export of goods should have been even smaller in February 2002," the spokesman said.

Goldman Sachs announced that Hong Kong has hit the bottom of the economic slump.

"In view of the burgeoning signs of global recovery, we believe we should now be at the trough of the current economic cycle," said John Anderson, senior economist of the investment bank.

On the way to recovery

Anderson predicted Hong Kong's merchandise export sector would resume growth in the second half of this year as regional exports recovered and China's import numbers improved on the back of World Trade Organization entry liberalization.

Goldman Sachs estimated the Hong Kong economy would rise 2 percent this year and 5.5 percent next year.

Hong Kong and Shanghai Banking Corporation Ltd (HSBC) last week raised its forecast for Hong Kong's economic growth from 1.8 percent to 2.7 percent, citing the global economic recovery would boost Hong Kong's exports.

However, HSBC Chairman David Eldon did not expect a full recovery over most of the year.

"It will be months before that comes to Hong Kong," Eldon said.

Eldon encouraged Hong Kong people to "get back to the entrepreneurial ways that made Hong Kong what it is and to forget the lure of quick personal profits which, over time, contributed to the loss of Hong Kong's collective competitiveness."

Nomura's Pu maintained his previous forecast for Hong Kong's economic growth of 0.9 percent this year and 5.2 percent next year.

"Hong Kong's historically high unemployment and the weak property price contribute to negative impact domestically. Externally, the help lent by U.S. economy is limited," he said.

Too early to be pessimistic

"In addition, Hong Kong faces the pressure of interest rate rise," Pu added.

Hong Kong residents remain in the shadow of more job cuts and lower living standard although many economists believe Hong Kong is already on the way of economic recovery.

More blue-collar workers will lose their jobs as Hong Kong is restructuring toward a knowledge-based economy, according to Goldman Sachs, which predicted Hong Kong's unemployment rate would climb to 9 percent within three years.

People will hardly feel the economic recovery just as in 2000, when Hong Kong's economy jumped 10 percent but people's life was little improved with a 3.8 percent deflation and drop of asset prices and salary, according to an economist with UBS Warburg.

Chairman of the Bank of East Asia David K.P. Li held pessimistic about Hong Kong's economic prospects.

"The growth will be zero percent this year and the unemployment rate could be higher," he said, citing weak business seen in many restaurants and shops.

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