This is no time for diminished confidence in the Hong Kong SAR. It may be a time for greater caution, but that is all. There is no doubt the Hong Kong SAR now faces a poorer outlook than it did a few months ago, or even a few weeks back, as a result of the subsequent deterioration in the U.S. and global situation. We do, however, have real strengths to fall back on in these tougher times.

Even before last month's horrendous terrorist attacks on the World Trade Centre in New York and the Pentagon in Washington DC, it was apparent the U.S. economy was flirting with recession and the whole Asian region, including Hong Kong, was feeling the adverse effects. We were ready to confront and overcome the problems facing us then; we can overcome those now facing us.

Certainly, the global political and economic outlook is more uncertain than it was before the attacks on the U.S. occurred. For those financial markets still open -- or still allowed to open -- once news of the U.S. attacks was known, the impact was immediate and negative. Share markets tumbled, the US-dollar fell, oil and gold prices rose, and bond prices were up as investors sought a safe haven, not so much from what had already occurred, but what might be the U.S. response. Volatility in most markets is likely to remain significant.

More important for the global economy -- and particularly the already weak East Asian economies -- was what the U.S. events and their aftermath might mean for U.S. economic confidence and performance. As a result, there were concerns about what impact this might have on global trade and investment (especially U.S. demand from the rest of the world) and, therefore, the economic outlook for the rest of the world, including Asia.

For the medium to longer term, if the U.S. responds with military action as the beginning of a series of military, diplomatic and economic steps to wipe out terrorism, there will be further uncertainties and the economic impact is likely to be felt not just in the U.S., but around the globe.

The export driven economies of the East Asian region, with the notable exception of the Mainland of China, were already experiencing dramatically slower economic growth even before the crisis. The proximate cause was the U.S. slowdown since the final quarter last year, despite much lower interest rates, together with the decline in high-tech industries and the subsequent decline in global and Asian trade.

Expected 2001 growth rates for most economies in the Asian had been radically lowered as a result of these factors, even before the latest crisis hit. Now growth forecasts are likely to be downgraded further, not just for 2001, but also 2002.

Take Hong Kong, for example. On August 31, the Hong Kong Government revised its 2001 forecast for the local economy down to 1 per cent from the previous 3 per cent rate. On September 10, the Chamber lowered its 2001 forecast to an average 0.7 per cent from the previous estimate of 2.8 per cent.

Fortunately, we in Hong Kong have good understanding of the problems amongst our leadership and a strong financial backing to overcome any economic difficulties, in any time span they may reasonably be expected to last. Importantly, too, we have the political and economic strength of an emerging Mainland of China behind us, with WTO entry now confirmed. These factors should stand us in good stead as we look to the future. A loss of confidence now would merely be self-defeating.