SCMP Friday, March 9, 2001

Economy set to slow on weight of external forces


Economic growth should moderate this year to an estimated four per cent after last year's double-digit rebound.
Mr Tsang confirmed the economy continued to flourish last year with growth of 10.5 per cent, the highest since 1987. But external pressures could weigh on prospects in the medium-term.
"Overall, Hong Kong's growth should moderate in 2001. On the downside, I expect our economic performance to be affected by the rapid slowdown of the US economy, continued economic stagnation in Japan and slower growth in domestic demand in East Asia," Mr Tsang said.
"On a positive note, we should stand to benefit from steady economic growth in the European Union and the sustained vigorous growth of the mainland economy, in particular, China's coming accession to the World Trade Organisation."
In his concluding remarks, Mr Tsang pointed out that, notwithstanding the adequate level of the Government's reserves, "we should not take the easy way out and rely on them for a living".
This may come as good news to tax professionals looking for a broader-based system to counteract the decline in the Government's traditional revenue earner of land sales.
Critics of a change to the system say the Government can afford to run successive deficits because of its massive reserves. A taskforce set up to look into the tax system last year will report on its findings in November.
Mr Tsang also outlined his medium-term forecasts, saying that in last year's Budget speech, he predicted a trend GDP growth in real terms of four per cent for the period from 2000 to 2003.
"I believe this trend growth rate remains valid for the period from 2001 to 2004," he said, adding that prices would rise gradually after zero inflation this year.
The Government has forecast total exports of goods will show a 5.5 per cent real rise in 2001 and local consumer spending will rise in real terms by 2.5 per cent.
Last year, initial estimates show the rate of deflation slowed appreciably, with the composite consumer price index moving from minus 5.3 per cent in January to minus 1.8 per cent in December.
Total exports of goods grew by 17.1 per cent in real terms, the highest since 1992. Exports to the United States, the European Union and Asia all recorded double-digit growth. Exports of services grew 14.3 per cent.
Local consumer spending grew by 5.4 per cent in real terms and overall investment spending turned around and grew 8.8 per cent in real terms.
Mr Tsang said such a performance again demonstrated Hong Kong's tenacity and resilience. But while the Government remained confident of steady growth - and expected job prospects to pick up - he repeated a note of caution based on the slowdown in the US economy.
"Over the medium-term, I expect the economy to continue to grow steadily, but the external factors which I have mentioned may still pose some challenges."
In conclusion, Mr Tsang was upbeat, saying Hong Kong had been through a "baptism of fire" during the Asian financial crisis and become more competitive than ever. The Government had strengthened its monetary and fiscal systems and the public sector had become more efficient.