Hongkong won't be too badly hit, say economists
By Audrey Tan in Hongkong
AS analysts in Hongkong take stock of the potential damage from a US economic slowdown, the words "doom" and "gloom" are not often heard.
As Merrill Lynch economist Ma Guoran put it: "The slowdown in the US economy will be negative for Hongkong as for any economy in Asia. But the impact here will be slightly less because Hongkong is less manufacturing-based, compared with South Korea, Taiwan and Singapore.
"Also, the US slowdown means more rate cuts and this will benefit Hongkong the most because of the currency board system."
Man Chan Wah, an economist at brokerage Worldsec International, added: "There's the expected slowdown in US consumer demand but then again, the interest rate cuts will benefit Hongkong's property and banking sectors."
Sure enough, Hongkong's headline gross domestic product growth is likely to come tumbling down this year. Most economists are now projecting around 4 per cent growth for 2001, down sharply from the 10 per cent estimated growth last year.
Besides the statistical effect of a higher base for this year's growth figures, slower export growth will likely account for much of the slowdown, economists said.
Worldsec's Mr Man said that his 4.1 per cent estimate for Hongkong's growth this year factors in "quite a significant slowdown" in demand for Hongkong exports.
The main cause of this will be slower US demand for imports from China, he said.
"Some 90 per cent of Hongkong's exports are re-exports, most of which are manufactured in China and shipped through Hongkong."
"The US accounts for a quarter of the demand for these exports.
"So if China's trade is affected, the Hongkong services industries, such as trade financing, insurance and trade forwarding, will all be impacted," he said.
But other economists said that even if US demand for Asian goods slow, Chinese exports should still do well by comparison.
Chris Leung, economist at DBS Securities, said: "China's strong competitive edge should help shield it from the adverse effects of the global economic slowdown."
He noted that China's share of the US import market had swelled to 36 per cent in 1999, more than double the 16 per cent share it had in 1990.
"This suggests that China has successfully claimed the market share from other Asian economies at a time when its domestic economy was slowing down. This competitiveness will not simply disappear in case of a global economic slowdown," he wrote in a recent economic report.
Add to this China's impending entry into the World Trade Organization, which will stimulate investment and trade flows.
Joseph Yam, chief executive of the Hongkong Monetary Authority (HKMA), said: "Our estimates within the HKMA suggest that Hongkong's annual GDP growth rate will be boosted by somewhere between half to one per cent through the increase in re-export trade resulting."
In any case, the expected sharp drop in headline GDP growth will not tell the complete story.
Last year's growth had been boosted by falling consumer prices, which led to deflation of around 4 per cent.
Despite slower global growth this year, Hongkong's deflationary cycle looks set to end, resulting in inflation of around 1-2 per cent, economists said. This means that in nominal terms, this year's growth is not likely to be much different from last year's.
Businesses have also complained that last year's growth had been led just by the external sector and that the "recovery" had left the domestic sectors behind.
"The current V-shaped economic recovery is an uneven expansion, driven mainly by external trade rather than the domestic sector," said the Bank of East Asia (BEA) in its latest economic analysis.
"Those that say the expansion of the local economy is a sort of 'numbers game' or 'paper tiger' do have a point."
This year, however, the unemployment rate is expected to creep down to 4 per cent and companies are likely to end the two-year wage freeze.
Lower interest rates in line with US rates also mean cheaper loans and lower mortgage payments, which may be exactly what Hongkong's sluggish property market needs.
Said Mr Man: "With job security improving and the property market cheaper with rates coming down, more people may be willing to take the plunge into buying property."
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