SCMP Saturday, September 1, 2001
Growth forecast slashed to 1pc
VANESSA GOULD, AMBROSE LEUNG and JOSEPH LO
The growth forecast for the year was slashed to just one per cent yesterday, as a government economist warned that the economy was unlikely to improve in the second half of the year.
The prediction had previously been three per cent. Second-quarter growth slowed to 0.5 per cent compared to a year earlier, hit by the slumping US economy and a dramatic and unexpected fall in investment locally.
Government economist Tang Kwong-yiu said the third quarter would "not be very different from the second quarter and we cannot expect a rapid rebound". He also acknowledged that year-on-year growth in the fourth quarter was expected to be close to zero.
Financial Secretary Antony Leung Kam-chung refused to speculate about whether the economy had already entered a recession.
Economic output from April to June shrank 1.7 per cent compared to January-March. If it shrinks again in the July-September quarter, the economy will have entered a recession. Hong Kong was last in recession in 1998.
"We are not saying we will or will not be in recession. As you can see, the number we are forecasting for this year is one per cent. But that is not really the point, because a lot really depends on the external economies," Mr Leung said. "The fundamental thing is for us to provide a better business environment and opportunities for the people to improve themselves."
Mr Leung said the growing mainland economy would help Hong Kong recover.
HSBC Holdings responded to the figures by slashing its 2001 economic growth forecast to 0.4 per cent from 1.8 per cent. The bank had already cut its forecast from 2.2 per cent earlier this month.
George Leung, senior economist at HSBC, said: "There's a possibility that Hong Kong will go into recession because we might see a negative seasonally adjusted figure in the third quarter."
The disappointing second-quarter figure was partly to blame on investment spending - up just 0.4 per cent from the previous year. Business spending on machinery and equipment grew only 0.3 per cent, compared to 22.6 per cent in the first quarter.
"It's worse than I thought," Hong Kong General Chamber of Commerce chief economist Ian Perkin said.
"There will probably be a very weak third quarter, zero growth or less - but a slightly better fourth quarter."
The Government also reported a continuing slump in world demand had resulted in a 1.9 per cent year-on-year decline in product exports. The only bright spot lay in service exports, which grew 5.3 per cent.
Federation of Hong Kong Industries director-general Vicky Davies said the results were to be expected following the worsening of Hong Kong's major markets in the US, Europe and Japan.
Ms Davies said she expected the unemployment rate to rise from the current 4.7 per cent. "Jobless figures are expected to go up, and there are people who are really feeling it - it's not only the working class losing jobs, it's middle-class skilled workers," she said.
However, British Chamber of Commerce executive director Christopher Hammerbeck said Hong Kong's stable labour and property markets - as well as the tendency of Hong Kong people to save rather than get into debt - would help the SAR "ride out the storm" that would hit the global economy over the next six months.
Australian Chamber of Commerce economist Kevin Lai Chi-man said the news was "quite depressing" and blamed the fall in investment - which contributes 30 per cent of economic output - for the drop.
"Companies are really scaling back their investment plans because of the current weakening global demand environment," Mr Lai said.
"If things go on like this in the third quarter we would be in a recessionary stage."
The Government last downgraded its 2001 growth forecast in May, reducing the four per cent predicted in the March 7 Budget to three per cent.
Stock market analysts said that while some investors had been waiting for the GDP results, the market had largely anticipated the results.
The Hang Seng Index fell 1.99 per cent to 11,090.48.