The Year of the Sheep got off to a rather ominous start. We had both war and pestilence in quick succession, and both dealt blows to Hong Kong's economy. Neither the SARS outbreak nor the conflict in Iraq has been fully resolved, though great progress has been made. SARS presents a severe challenge, but Hong Kong is working hard to overcome it.

Hong Kong's integration with China has been one of the ingredients of its success. Indeed, trade from China through Hong Kong has been crucial for Hong Kong's development as a prosperous, cosmopolitan city. And Hong Kong's economic relationship with the Mainland has contributed to China's successful economic reforms. The two economies are helping each other as their interdependence grows.

SARS has intruded abruptly into this picture. Economic integration with the Mainland has huge benefits, but it has become even more evident that there is risk to be managed as well. Hong Kong has demonstrated impressive assets in the face of this public health crisis, beating back a new disease that broke without warning from across the border. Hong Kong went first and the rest of the world learned from your experience.

Looking ahead, we are encouraged by indications that the general picture is improving in Hong Kong. That is a hopeful and welcome sign, but we must remain vigilant, as the recent news out of Singapore highlights so poignantly. Our collective work on SARS is not yet over, and it may continue well into the future.

The macroeconomic effects in Asia may not be severe if the spread of the disease can be controlled soon. Major Asian economies might suffer total losses amounting to less than 2 percent of total GDP. Travel, convention, entertainment, retail, and financial service sectors, as in Hong Kong, will be hardest hit. This year's Guangzhou trade fair booked a fraction of last year's orders, for example. Even a 2 percent hit might be too optimistic if the tourism sector takes longer to rebound. Long-term damage on the supply side will depend on how quickly the affected economies can restore business confidence. It will take the measured, professional judgment of health professionals to convince people that SARS is not a threat. This is not an evaluation that can be cajoled, negotiated, or demanded. Much will depend on the Hong Kong public health authorities' ability to effectively screen borders and account comprehensively for so-called "sporadic" cases. This is a steep challenge, I know, and one that strikes at the heart of Hong Kong's economic vitality.

Public confidence is one indicator as to what might loom ahead. Signs on the street suggest that Hong Kong people are getting on with their lives. SARS may be here for a while, but Hong Kong has the capacity to adapt to this new factor in every day life. Greater attention to public health will increase the quality of life in the long run, helping Hong Kong combat other diseases such as tuberculosis and dengue fever. As public hygiene improves, so will the lives of the Hong Kong people, and that will be a permanent change for the better.

So let us take stock: yes, SARS has seriously challenged Hong Kong. The terrorist attacks of September 11, 2001 and the Bali bombing hurt Asian tourism and trade. Hong Kong was vulnerable to SARS due to its very openness -- its close integration with China, its open borders, and its generally non-interventionist government. Unfortunately, SARS will be with us for the foreseeable future and the course of the disease on the Mainland will impose significant burdens on Hong Kong's economy. We were buoyed by the cooperation we saw in Bangkok a few weeks ago at the ASEAN-PRC leaders' conference. More of the same will come with the APEC health ministers' conference, scheduled for July. We must learn to live with this new reality in much the same way we all have learned to live with the ongoing war against global terrorism.