29 November, 2002

UP-TURN SHOWS HONG KONG IS BEGINNING ITS RECOVERY

Hong Kong joined the rest of East Asia in recovery, posting a strong 3.3% real economic growth rate in the third quarter. Led by exports-particularly services for the booming Pearl River Delta-and a slower decline in local private consumption, the figures were the best since the first three months of 2001, and the second consecutive quarter of positive growth. The latest numbers pushed growth in the first nine months to 1.3%.

Hong Kong General Chamber of Commerce Chief Economist David O'Rear says: "The numbers confirm that Hong Kong is on the up-swing. More important, the first two quarters of the 2002-2003 fiscal year show better-than 2% real growth".

The government's revised 2% growth rate estimate for the current year (up from 1.5% at mid-year) appears justified. However, deflation remains a problem, and a worsening one. The GDP deflator, the widest measure of price changes, fell 3% in July-September, the sharpest drop in two years.

The SAR��s performance is in line with other East Asian economies, which posted modest but positive growth rates in their latest quarters. Stronger-than-expected growth in the US (which revised its own Q-3 growth rate up to 4% this week) and signs of a recovery in consumer demand in Japan bode well for Hong Kong��s fourth quarter prospects as well. Overall, the second half of this year is likely to see at least 3% growth over the same 2001 period, boosting full-year results to 2%. Whether or not the trend will continue depends on our transitioning efforts and on outside reasons such as if there will be a war with Iraq.

Exports were the highlight of the third quarter's performance, particularly services. As container terminals up the Pearl River Delta ran beyond capacity, Hong Kong��s services and re-exports took up the slack. Moreover, the 5.2% rise in retained imports signals rising demand in the SAR itself, a sharp contrast to the 3.9% drop in January-June.