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To: ms.smartest.person who wrote (2070)	11/30/2001 12:16:12 AM
From: ms.smartest.person	Read Replies (1) \| Respond to of 2248

WSJ/Business and Finance - Asia Growth Figures Edge Hong Kong Closer Toward Official Recession November 30, 2001 By KAREN RICHARDSON and MATT POTTINGER Staff Reporters of THE WALL STREET JOURNAL HONG KONG -- Government economists are expected to confirm Friday what most people in Hong Kong already suspect: The city is in a recession. Far less certain is when the economy will start to grow again. Analysts say a recovery in Hong Kong, like much of the rest of Asia, is held hostage until a rebound in the global economy, particularly in the U.S. Only then will the heavy trade flows of the past return to boost Hong Kong's economy -- one of the freest in the world. Reliance on the continuing economic expansion of mainland China, its neighbor and largest trading partner, is a major help, but not enough to tilt the city into positive territory, some economists say. "China at the moment is not big enough to replace the U.S.," said Chris Leung, senior economist at DBS Vickers Securities Ltd. "The idea of creating an Asian economic cycle headed by China -- it's still premature." 1Top Hong Kong Official Forecasts a Contraction (Nov. 13) The government is scheduled Friday afternoon to announce gross-domestic-product figures for the third quarter. An average of forecasts by 10 economists polled by Dow Jones Newswires showed expectations of a seasonally adjusted GDP contraction of 1% in the third quarter compared with the previous quarter, hot on the heels of a 1.7% contraction in the second quarter. "This means we are in a recession," said HSBC Chief Economist Geoffrey Barker. "The important thing is when do we stop going down and start to stabilize? And our view is that we will be doing that by the middle of next year." The government's official forecast is for 1% GDP growth this year but most expect that prediction will be reduced Friday. The last time Hong Kong fell into recession -- considered by some to be two consecutive periods of quarterly contraction -- was in the last two quarters of 1998. While many economists share the view that the global economy will begin to recover in the middle of next year, that is by no means assured. Hong Kong's Chief Executive Tung Chee Hwa said in a speech this month that he expects the city's economy to shrink "for a few quarters." Economists' GDP predictions for Hong Kong in 2002 are also all over the map, from a 1% contraction in real GDP to growth of 3.5%. What is more, a recovery isn't likely to be robust because of lingering structural problems in Hong Kong, namely its fading competitiveness vis-a-vis mainland China. "We're not predicting a very strong recovery," says Arup Raha, chief economist at UBS Warburg in Hong Kong. For Hong Kong residents, that is likely to mean the symptoms of recession -- higher unemployment, weaker consumer demand and steeper deflation -- will get worse before they get better. The current downturn already looks to be worse in some ways than the last one, which was a result of the Asian financial crisis. Joblessness, which was 5.5% from August to October, is lower than the 6.4% high during the Asian financial crisis. But it includes a broader cross-section of society, which will take a harder toll on retail and property sales. "This time is very different: it includes middle-income earners as well as professionals, whereas last time was limited to unskilled labor," said Mr. Leung of DBS. "The effect on consumption is even more dramatic than the figure suggests." Many expect the unemployment rate to continue rising. CLSA economist Amar Gill forecasts joblessness to peak at 7.5%. The slowdown could also have implications for Hong Kong's fiscal policy. Financial Secretary Antony Leung has declined to rule out a budget deficit of as much as 100 billion Hong Kong dollars (US$12.82 billion) for this fiscal year, as traditional income sources such as taxes, property sales, and gains on the stock market have fallen dramatically. That has raised questions about whether the city will need to revamp its tax system, something the government has said it is studying. The problem has also reopened a bitter debate between many lawmakers and Mr. Tung's administration about whether the city should dip into its sizable reserves to spend its way out of trouble. Some economists, including George Leung at HSBC Securities, say the government can't afford to pump-prime the economy. "This year the government has a huge deficit, so it should put emphasis on budget balance," he says. "It's tough in this type of economic environment, but the government should sharply cut down on its spending on infrastructure and reduce the cost of the government machinery itself," he adds. -- Liz Rudall of Dow Jones Newswires contributed to this article. Write to Karen Richardson at karen.richardson@awsj.com2 and Matt Pottinger at matt.pottinger@awsj.com3. -------------------------------------------------------------------------------- URL for this Article: interactive.wsj.com Hyperlinks in this Article: (1) interactive.wsj.com (2) mailto:karen.richardson@awsj.com (3) mailto:matt.pottinger@awsj.com -------------------------------------------------------------------------------- Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved. Printing, distribution, and use of this material is governed by your Subscription Agreement and copyright laws. For information about subscribing, go to wsj.com Used with permission of wsj.com