Chamber's chief economist predicts economy will continue strong growth this year and into 2002, a view which is backed up by business sentiment

Hong Kong should experience solid growth with low average inflation in the 2001 calendar year, predicts the Chamber's Chief Economist Ian K. Perkin. Speaking at this year's business summit, Mr Perkin put GDP growth for the year ahead at 4.8 per cent and consumer price inflation at 2 per cent.

While the predicted growth rate for 2001 is much slower than the expected 10 per cent plus real growth outcome for 2000, he pointed out that this was an exceptional year, marking the rebound of the HKSAR from the recession of 1999 and 1998, he said.

"This real growth in 2001 will be more evenly spread across the whole economy than was apparent in 2000, it will be coming off a solid base and will be achieved in an economic environment where deflation has disappeared from the equation," Mr Perkin said.

Some clouds on the horizon during the second half of the current year threatened to stunt growth, the most obvious being a slowdown in the U.S., equity market volatility, higher global oil prices and the emergence of apparent currency misalignments against a strong US-dollar. But these concerns appear -- at least for the moment -- to have eased, he said.

While figures point to a strong economy, local sentiment that things are picking up has not improved. But he predicts a feel-good factor will start to be felt next year given a predicted 2 per cent increase in wages, and 5 per cent contributions to the MPF scheme.

"The disappearance of deflation will have an impact on consumers' purchasing power," he said. "There should be some improvement in the property market over the year and this should help community sentiment, but with values still so far below their 1997 peak there is a long way to go before the Ôwealth effect' re-emerges."

Employment should continue to improve throughout the year, albeit only gradually and the unemployment rate should drop to around 4 per cent of the workforce from the present level of 4.8 per cent.

China's entry into the WTO will generally be positive for the Mainland economy and for the Hong Kong SAR in the year ahead and beyond, he predicts.

"Its impact, however, will be gradual and effected by other economic events, for example, the pace of growth globally and, especially, in the U.S."

Business confidence strong: survey

The majority of respondents to this year's Business Prospects Survey expect a positive economic outcome and good business conditions in 2001, which will continue into 2002, Mr Perkin said.

The Business Prospects Survey 2000, the third to be conducted by the Chamber, was organised by questionnaire sent to 2,900 chief executives of member companies between mid-October and mid-November, 2000.

The climate of economic and business optimism apparent in the Business Prospects Survey 1999 is even more apparent in the 2000 survey.

According to the survey, Hong Kong will not only experience good growth in 2001, but also in 2002. The SAR therefore appears to be in sound economic shape and ready to face the challenges ahead.

But this year's survey, like those in 1999 and 1998, still shows the SAR business community is concerned about some aspects of Hong Kong's economic and social development. Economic issues such as wage and property costs, competitiveness and the availability (and cost) of finance, remain prime business concerns.

So, too, do social issues such as the environment and education standards, including the English, Putonghua, and technical skills of the SAR's young people. There is also a high level of concern about the performance and policies of the SAR Administration, although these have moderated somewhat from previous surveys (perhaps an understandable outcome given the improvement in the local economy).

Regarding economic growth, 65.4 per cent of respondents expect economic growth to be up to 4 per cent in 2001 and 18.8 per cent expect it to be better than 4 per cent. Only 12 per cent expect zero growth and 3.8 per cent negative growth.

Some 52. 5 per cent of respondents said they expect inflation of up to 4 per cent in the coming year and 34.4 per cent expect zero inflation. Only 2.7 per cent expect inflation of greater than 4 per cent and 10.4 per cent anticipate deflation will continue.

A total of 59.6 per cent of respondents are expecting "satisfactory" business conditions in 2001 and 19.5 per cent are expecting "good" or "very good" conditions. Only 20.9 per cent expect "poor" or "very poor" conditions. For 2002, 51.9 per cent are expecting "satisfactory" conditions and 33.9 per cent "good" or "very good" conditions. Only 14.2 per cent are expecting "poor" or "very poor" conditions.

Most respondents (45.6 per cent) expect employment levels to remain the same in 2001 as they were in 2000, but 49.6 per cent expect an overall increase in employment in 2002. Some 38.3 per cent expect an increase in employment in 2001, while only 14.2 per cent expect in decrease. Only 17.7 per cent of respondents still expect a decline in employment in 2002, while 32.7 per cent expect it to remain the same.

A new question this year on wage review plans for respondents in 2001 found a trend towards pay reward for increased productivity, performance and profitability, with 59.8 per cent of respondents saying they would conduct their 2001 pay review on this basis. Some 24.6 per cent said would give a general wage rise, 14.5 per cent planned to continue with a general wage freeze and only 1.1 per cent were contemplating wage cuts.

Over half of the resp-ondents, 56.8 per cent, said Hong Kong international competitiveness had improved or remained the same in 2000 (19.3 per cent "improved", 37.5 per cent the "same"), while 43.2 per cent said it had declined. Interestingly, 52.6 per cent said they were confident Hong Kong could improve its competitiveness in three-to-five years, 47.4 per cent said they were not.