HK growth seen plunging to 2% - from last year's 10.5%
Unemployment could hit 5% by year-end amid slowing exports, deflation
Business Times - 22 Aug 2001
By
Audrey Tan
In Hong Kong
HONG Kong's economy will rapidly slow to around 2 per cent growth this year, as its export sector continues to contract and domestic demand remains moribund amid rising unemployment and persistent deflation, economists say.
Most observers now expect gross domestic product (GDP) growth to slow to 2 per cent or less this year, from growth of 10.5 per cent last year. They also say that the unemployment rate could hit 5 per cent by year-end.
Already, the jobless rate crept up in the last month, to 4.7 per cent in July. Yesterday, the government said that consumer prices continued to fall, by 0.9 per cent in July.
Many institutions have downgraded their 2001 GDP forecasts for Hong Kong in the recent months, and the government is expected to do the same when it releases the second-quarter statistics at the end of this month.
HSBC now expects growth of just 1.8 per cent this year, Hang Seng Bank and Standard Chartered both forecast 2 per cent, while the Economist Intelligence Unit has cut its estimate from 2.4 per cent to just 0.7 per cent.
DBS, in a research note released yesterday, said that its GDP forecast stands at 2 per cent, but that it was looking to Q2 figures for 'further clues'. It said: 'All the major Q2 indicators suggest ongoing weakness as a result of the fast global economic downturn. We are also concerned about whether the US economy will pick up and whether the Hong Kong government will put forward feasible measures to spur the economy.'
Traditionally export-led, Hong Kong has seen its exports contract since March as global demand for goods from the US and Japan slowed. Total exports fell 8.4 per cent in value terms from January to June, reflecting China's own export slowdown as almost 90 per cent of Hong Kong's exports originate from the mainland.
As a result, Hong Kong's GDP grew just 2.5 per cent in the first quarter, and a Reuters survey found that economists are expecting a further slowdown to 1.6 per cent in Q2.
George Leung, senior economist at HSBC, said: 'China's strong growth will not benefit Hong Kong much this year, as the mainland's growth momentum has shifted from external trade to domestic demand.'
Domestically, deflation has dogged Hong Kong's retail sector for three years now and consumer prices fell 2 per cent in Q1 and another 1.3 per cent in Q2. While the government is keen to point out that the drops are getting smaller, economists say that the jobless situation makes a recovery in domestic demand and consumer prices unlikely.
Banks, insurance companies, telecommunications companies, retail outlets and dotcoms have led the job cuts so far, and the government has said that it, too, may cut some jobs.
Conita Hung, an economist at Mansion House, expects the job market to remain 'unfavourable'. 'We expect that the job market conditions will be further dampened by firms quickening their pace of layoffs. We expect that the unemployment rate will remain on a rising trend to 5 per cent by the end of this year. This will add more uncertain factors to an economic pick-up ahead.'
But DBS economist Chris Leung said that China's entry into the World Trade Organization (WTO) may lead to a robust pick-up in private sector investment, foreign investment, trade as well as fund-raising activities in Hong Kong. But he added: 'However, economic restructuring, cross-border consumption and Hong Kongers' propensity for prudent consumption may hamper general prices recovery and retail consumption.'
Copyright © 2001 Singapore Press Holdings Ltd. All rights reserved.
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