Yearender: Hong Kong on Road to Recovery in 2002

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Last updated at: (Beijing Time) Monday, December 30, 2002

Yearender: Hong Kong on Road to Recovery in 2002

The Hong Kong economy has managed to attain a better-than-expected growth rate and get on the road to recovery in 2002, with asset prices further declining and unemployment soaring during the year.

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The Hong Kong economy has managed to attain a better-than-expected growth rate and get on the road to recovery in 2002, with asset prices further declining and unemployment soaring during the year.

Economists here believed that with the solid foundation laid down in the year, Hong Kong's economy will benefit from slightly greater external momentum and achieve moderately higher growth in 2003.

Statistics showed that Hong Kong's GDP still registered year-on-year decline during the first quarter, while gradual improvement which started in the second quarter led a 4-percent growth in the fourth quarter, lifting the growth rate for the whole year to 2 percent.

A recent report from the economic and strategic planning department of Bank of China (Hong Kong) described the Hong Kong's economy in 2002 as "strong externally but weak internally," referring to the relatively strong recovery in some economic activities stimulated by external demand and the slack domestic demand.

The report indicated that Hong Kong's external trade growth in real terms for the whole year is expected to reach 7.1 percent, a significant improvement from last year's -3.3 percent, with exports of services maintaining an even-better growth throughout the recession period.

However, the report said the slack domestic demand has resulted in the still contracting consumption and investment in 2002, with private consumption falling by 1.4 percent during the first three quarters and real domestic fixed capital formation declining by 6 percent.

On the whole, Hong Kong's economy has undoubtedly improved in 2002 compared with the previous year, though it has not been able to overcome all the difficulties, the research report concluded.

ING Financial Markets, one of the largest financial groups in Europe, predicted that Hong Kong's economy has bottomed out in 2002. In sharp contrast to many private sector economists, ING believed that Hong Kong's current downturn is caused mainly by structural factors such as deflation and increased competition from China's mainland.

ING expected that Hong Kong will rebound as growth globally improves, which in turn will propel consumer demand in Hong Kong. As retail sales start to grow, Hong Kong's economy will begin to create jobs again, and unemployment will fall.

Observers from foreign investment banks here believed that the performance of the Hong Kong economy in 2002 has been a mixed result of cyclical and structural factors with its boom and bust correlating closely with the external economy.

One of the examples is that the global recovery this year has made demand from Hong Kong's major export markets rebounding back and offered opportunities for Hong Kong. Other favorable factors for Hong Kong's exports are the weak US dollar this year and China's accelerating economic growth.

The observers also believed that although the restructuring of the local economy is a long-term process, adjustment in manpower and wages has caused unemployment to rise and income fall, with the highest unemployment rate surging 7.8 percent in 2002.

Considering Hong Kong's domestic situation, the crucial factors affecting growth are largely the budget, property market stabilization policies and progress of economic restructuring, the observers noted.

For that reason, Hong Kong government has taken a series of strong measures to boost the local economy, including the policiesto stabilize property market in November. James Tien, a Hong Kong Legislative Council representative, shared his views on how the government's new measures to stabilize property prices will strengthen the property market, and with it the local economy.

The 13th annual Business Outlook Survey by the American Chamberof Commerce (AmCham) in Hong Kong reflects a high level of confidence in Hong Kong's business environment over the next five years.

Some 42 percent of the survey respondents expected Hong Kong's economy to be satisfactory in 2003, a marked improvement over the 73 percent who forecast a poor economic performance for 2002. AmCham members predicted a strong economic rebound beginning in 2004 and continuing through 2005.

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