The Hong Kong General Chamber of Commerce announced on September 10 that it was downgrading the expected growth rate for the local economy in the 2001 year to an average 0.7 per cent from the previous estimate of 2.8 per cent.

A day later, the horrific, terrorist attacks on the World Trade Centre in New York and the Pentagon in Washington D.C. sent right-minded people around the world into shock and global financial markets into a tailspin.

The dreadful destruction and loss of life were immediately apparent to all those viewing their events on there television screens world-wide, as was the impact on the American people, both survivors close to the events and those more distant from them.

The reaction of world markets was also immediate, with stock prices plunging, oil and gold prices rising, currencies fluctuating and confidence damaged, perhaps severely. Short-term volatility looked like ruling in all financial markets.

For the medium-to-longer-term, the consequences of the attacks -- political, diplomatic and economic -- remain uncertain, but are likely to be substantial. The negative economic impact is likely to be felt not just in the U.S., but around the globe.

Making his first comment on the potential impact, the SAR Financial Secretary, Antony Leung, said the economic situation would have to be carefully monitored.

In its own announcement of its revised SAR economic forecast immediately before the U.S. attacks, the Chamber acknowledged that if world conditions were to deteriorate further, the 0.7 per cent growth target could prove to be at the top end of the range.

This must now be a real prospect. The U.S., global and Asian regional economies were already slowing ahead of the revised forecast being made and the U.S. global outlooks are both now more uncertain than they were prior to the attacks.

In its assessment, the Chamber said that given the external factors affecting the local economy, and apparent weaknesses in both domestic consumption and investment, the government's forecast of 1 per cent annual growth might be slightly optimistic.

The Chamber pointed to the continuing weakness in the external trade picture in July, the further setback to domestic retail sales in the same month and some scaling back of investment all suggested a weak outlook for the second half.

So, too, did the fact that unemployment also appeared to be on the rise and would do little for confidence in the medium term.

The Chamber suggested that lower interest rates would ultimately have some impact, but with potential borrowers lacking in confidence and lenders continuing to take a cautious approach, it would take some time for them to give a lift to activity.

In its own statement on August 31, the SAR Government said the sluggish global economic environment continued to weigh on the Hong Kong economy in the second quarter of 2001. On a seasonally adjusted quarter-to-quarter comparison, GDP declined 1.7 per cent in real terms in the second quarter of 2001, after staying virtually flat in the first quarter.