May 31, 2002

THE SAR ECONOMY: STILL LACKING DOMESTIC CONFIDENCE

Chief Economist, Ian K Perkin, comments on Hong Kong's First Quarter Economic Report and Gross Domestic Product (GDP) figures issued today.

Faced with widespread uncertainties globally - the pace of US economic recovery and tensions in south Asia and in the Middle East and the ongoing “war” on terror - the SAR Government is maintaining its somewhat conservative stance on the economic outlook.

It has therefore held its average Gross Domestic Product (GDP) forecast at a real 1 per cent for the 2002 year. The Chamber maintains its forecast at a real 2 per cent.

The first quarter decline on 0.9 per cent in Gross Domestic Product (GDP) was somewhat worse than expected by private sector analysts in their most recent forecasts, but certainly better than their expectations had been earlier in the year.

The economy’s strengths in the first quarter were predominantly external in nature, with trade in goods better than expected (although still down on 2001) and good growth in services exports, especially tourism, growing offshore trade and transport services.

For these strengths, the SAR can mainly thank the Mainland, with its contributions in terms of tourism growth and offshore trade being particularly important.

The weaknesses in the economy, on the other hand, continue to be home grown, with personal consumption be affected by higher unemployment and low or non-existent wage growth, and investment in both construction and equipment being weak.

The domestic weakness is also a result of low levels of general confidence due to the uncertainties clouding the US and global economies - and despite the apparent good performance of the Mainland economy, both in its home market and exports.

These low confidence levels are not being helped by the external tensions pointed to by the Government Economist - in south Asia, the Middle East and terrorism concerns - nor by the domestic weaknesses in employment, profits and wages.

Continuing domestic deflation is also not helping matters, despite the obvious benefits to consumers.

For further information, contact: Ian K Perkin, Chief Economist, 2823-1242