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To: Chris who wrote (13725)	8/4/1998 1:23:00 AM
From: flickerful	Respond to of 42787

careful watch... HK's economy shrinking, worse to come - government 3 August 1998 Web posted at: 23:42 JST, Tokyo time (14:42 GMT) HONG KONG, Aug 3 (Reuters) - Hong Kong's economy shrank 2.8 percent in the first quarter of 1998 and will probably contract further in the second quarter, the government said on Monday. Official figures showed Gross Domestic Product shrank 2.8 percent, compared to an earlier unofficial government estimate of 2.0 percent. It was the first quarterly contraction since 1985. The sharp first quarter contraction compared to real GDP growth in 1997 of 5.3 percent, which was confirmed on Monday. Hong Kong, which reverted to Chinese rule in July 1997, has been savaged by Asia's deep economic crisis. Tourism, retail sales, jobs, the property and stock markets have all taken hard hits since last October. Economists have said there is no relief in sight and many have predicted negative growth for the year as a whole. "We are not surprised at all. When the government came out with 2.0 percent previously, we thought it must be worse," said Shawn Xu, senior economist at Merrill Lynch. "The main reason is the collapse of asset prices, in the Hang Seng Index and property. By the same yardstick, Hong Kong's second quarter GDP will be worse. Our estimate now is negative 4.5 percent," said Xu. The technical definition of a recession is two consecutive quarters of negative growth. The government on May 29 broke with tradition and released a rough estimate of first quarter performance after it became painfully clear that the economy would not come close to achieving its official forecast of 3.5 percent growth in 1998. Since then, the government has cautioned residents repeatedly that the economy will get worse before it gets better, a warning it reiterated on Monday. "I would expect that the GDP growth rate for the second quarter to be probably somewhat worse than in the first quarter," government economist Tang Kwong-yiu told reporters. Lehman Brothers economist Rob Subbaraman said the second quarter could be twice as bad as the first quarter. "If you look at recent numbers, retail sales are falling, tourist arrivals are down, unemployment is on an uptrend, imports -- which are a good indication of domestic demand -- are down, and China is slowing," said Subbaraman. "We are going to see more and more fiscal stimulus in the second quarter and the key is whether this starts multiplier effects, if it creates jobs, boosts income. But if unemployment is up, consumer sentiment might be too poor for the multiplier effects to work," he said. Tang repeated that the government had no plans for any new relief measures despite the grim growth figures. Earlier this year, authorities unveiled a series of spending measures and tax cuts designed to nudge the economy and bolster confidence. But Lehman's Subbaraman said the government may have no choice but to pump the economy further because it can't boost the economy through monetary policy. "I wouldn't rule out more fiscal stimulus. In fact, it is looking more and more likely," he said. "If you look at Korea and Thailand, there is a lot of stimulus coming through lower interest rates, and in Malaysia also." Hong Kong would have difficulty lowering interest rates to stimulate the economy because of its official Hong Kong-U.S. dollar peg, which has maintained the local currency's value despite erosion in the currencies of many of its crisis-hit neighbours. The government is expected to offer a full-year 1998 growth forecast when it delivers its half-year report on the economy on August 28. . Copyright 1998 Reuters Limited. All rights reserved. c 1998 Cable News Network, Inc. All Rights Reserved. Terms under which this service is provided to you. Read our privacy guidelines.