HKGCC expects the local economy to grow by about 2 per cent in 2002 after experiencing zero or slightly negative growth in the current year.

In his annual economic forecast, Mr Perkin predicted that the Hong Kong SAR will experience a short, sharp recession into the early months of the 2002, but it will start to recover along with the U.S. and global economies by the middle of the year.

"The only caveat we place on this forecast is that there is no further deterioration in the global political situation, as a result of any setbacks in the current U.S.-led campaign against terrorism.

Mr Perkin forecasts that nominal GDP growth for the 2002 calendar year will be 3 per cent, but deflation will disappear as the year progresses. Inflation for the full year should be slight, averaging up to 1 per cent.

Private consumption spending will show moderate positive growth of 2.5 per cent, about the same as in 2001, while government consumption spending will continue to grow, but at a slower pace than in 2001.

He was bullish that investment spending will pick up in the year, predicting a 4 per cent growth rate, compared with the expected 1.7 per cent growth in 2001.

However, he expects that external merchandise trade will continue to decline, with exports to be a negative 2.2 per cent in real terms and imports to decline by a more moderate 1.6 per cent.

The global economy and trade were showing marked signs of a slow down even before the negative impact on the world economy with the events of September 11 and the subsequent launch of a campaign against terrorism by the U.S. and its coalition partners.

This slow down, which was especially marked in the U.S., and also in Europe and Japan, had a negative impact on many of the open economies of the East Asian region, including the Hong Kong SAR.

One major exception to the negative impact was the Mainland, where continued domestic stimulus enabled the economy to maintain a positive rate of GDP growth of around 7 per cent.

However, even the Mainland was adversely affected by the slow down in world trade growth and this weakness in global trade is expected to continue at least into the opening six months of the new year.

With this sort of background, the East Asian economies are expected to see continued weakness in the first half of the new year, followed by a better outcome in the second half.

Hong Kong is expected to follow this trend.

The one concern is that the global political situation does not see any further setbacks that would impact negatively on the outlook for world trade, investment and economic growth.

A large majority of Hong Kong companies are confident that China's entry to the World Trade Organisation (WTO) will be positive for Hong Kong SAR and their own businesses, despite generally weak economic expectations for 2002.

But they would like to see greater support from the Hong Kong SAR Government in helping pursue business leads in China and a strong majority supports Hong Kong's attempts to seek a free trade agreement (FTA) with the Mainland, in accordance with WTO rules.

These are just a few of the major findings of the Chamber's fourth Annual Business Prospects Survey conducted in October and November this year, the results of which were presented at the business summit.

The survey revealed very real concerns about the likely trend in the Hong Kong SAR economy in the coming year, but there was widespread confidence in the benefits of China's entry to the WTO.

Mainland China's WTO entry was generally well received by respondents, with 69.3 per cent believing it would be positive for the SAR, 22.5 per cent thinking it would be negative and 8.2 per cent believing it would have little or no effect.

As for the effect of entry on their own businesses, 65.5 per cent said it would be mainly positive, 15.5 per cent that it would be negative and 19 per cent that there would be no effect.

There was a clear view among respondents that the Hong Kong SAR Government could or should do more in talking with the Central Government about issues important to Hong Kong business:

Asked to assess the SAR's economic outlook for 2002, only 8.6 per cent of survey respondents expected the economy to be stronger (8.4 per cent) or much stronger (0.2 per cent).

A further 25.7 per cent thought Hong Kong's economic performance would be about the same as in 2001.

However, 47.2 per cent of respondents thought the economy in 2002 would be weaker than in 2001 and 18.5 per cent thought it would be much weaker.

There was a far more confident assessment of the prospects for 2003, with 43 per cent of respondents expecting the economy to be stronger and 2.6 per cent suggesting it would be much stronger.

However, 20.6 per cent of respondents thought it would remain about the same and 26.2 per cent suggested it would be weaker. Only 7.6 per cent thought it might be much weaker.

A majority of respondents (59.5 per cent) thought that deflation would continue in 2002 and a further 32.2 per cent were expecting zero inflation.

Only 7.9 per cent were expecting up to 4 per cent inflation and only 0.4 per cent were expecting it to be higher than that.

On the wages outlook, a slight majority of all respondents (52.7 per cent) said their company would be continuing with a wage freeze in 2002, but 36.5 per cent said they would give wage rises based on performance, productivity and profitability.

Only 3.6 per cent said they would be granting a wage rise in 2002 and only 7.2 per cent said there would a general reduction in wages.

There was a high level of opposition to the introduction of a broad-based consumption tax to cover any structural deficit in the Government's Budget, with 70.7 per cent of respondents opposing the introduction of such a tax and only 29.3 per cent in favour.