Hong Kong's economy is in the doldrums, once again. While this year's reason is 70 percent pneumonia and 30 percent structural, the externalities -- factors outside our economy -- are actually quite favourable, at least for now.

According to the International Monetary Fund's (IMF) World Economic Outlook, published in April, global GDP is forecast to rise 3.2 percent this year and 4.1 percent in 2004, the fastest growth since 2000. The world economy is thought to be expanding a healthy 3 percent in the first half of this year, and ever so slightly faster in July-December. A year from now, in January-June 2004, global GDP is forecast to be rising at a 3.8 percent clip, picking up speed later in the year. Forecasts for segments of the world -- the rich nations, Asia and of course, Hong Kong and the rest of China -- vary from one economist to the next (we never all agree on anything), but the general trend is far from grim.

Hong Kong's fortunes closely track those of the world economy, rising more rapidly when global growth -- and particularly growth in trade -- rises, and dipping during global slumps. In the second half of 2002, the global economy is estimated to have grown nearly 3.5 percent, which coincides with Hong Kong's return to positive growth. As the first graph shows, our economy rises and falls with the world's fortunes.

Atypical pneumonia changes some of that, but not all. We are losing economic activity in the tourism, restaurants and retail sector at an alarming rate, but trade -- which is equal to nearly three times the size of our domestic economy -- remains robust. The concern now is over perceptions, as well as patients. If we are seen to be paralysed, the lag between controlling the epidemic and economic recovery will stretch out unnecessarily.

Trade plays a critical role in our economy, and when world trade is on the up-swing, Hong Kong prospers. In 2001, global trade had its worst year in more than a decade, and as a result Hong Kong's two-way trade (we make money both ways) contracted 1.8 percent. Last year, world trade expanded 2.5 percent, according to the World Trade Organisation (WTO), and the HKSAR saw an 8.1 percent growth in international commerce. The IMF expects trade to rise 4.3 percent in 2003 and 6.1 percent next year, setting the foundations for strong growth -- at least in that critical sector -- here at home.

Five Asian neighbours -- Japan, South Korea, Taiwan, Singapore and the Mainland of China -- accounted for 61.7 percent of Hong Kong's two-way trade last year. Their transactions with the world increased 7.6 percent in 2002 over the previous year, and laid the foundation for Hong Kong's strong trade performance. This year, the trade of these five economies -- combined imports and exports -- is up 27 percent in the first quarter, over January-March 2002. Clearly, any increase of this magnitude must bode well for Hong Kong's own commerce, although, the impact of the atypical pneumonia epidemic must be taken into account. The USA is the other major trading partner, and while first quarter data are not yet available, the 9.9 percent growth in two-way trade in January-February, over the same 2002 period, is strong.

The second graph shows the correlation between global trade and that of Hong Kong. What cannot be shown is how soon quality assurance teams will feel comfortable enough to return to inspecting factories in the Pearl River Delta, buyers will come to trade shows and orders for winter fashions and Christmas toys will start coming in.

Hong Kong's close proximity to the source of the pneumonia outbreak may raise questions about the wisdom of deeper integration with the Pearl River Delta, or indeed, about globalisation itself. As businesses, we need to fight this perception. Foreign-invested factories in Guangdong, for the most part, are among the best in China in terms of worker safety and hygiene. Hong Kong-based employees are a huge part of the travel across the boundary, and yet the main sources of concern are housing estates and hospitals. These are critical messages that we should be communicating with our trading partners.

As for globalisation, it should be obvious that the presence of international investors in the Pearl River Delta is one of the main reasons that it is the most prosperous part of the nation. We, as businesses, are directly responsible for dramatically raising the standards of living of millions of people. These people are not just our workers (or shareholders), but also associated businesses such as suppliers, the employees of those businesses, and the families of everyone involved. Because of our presence, millions of people eat better, have improved access to medical treatment, live longer and have a greater opportunity to educate their children. Their working conditions are vastly improved, their ability to compete in the world is enhanced and their prospects for a better future assured.