The first year of the 21st century has ushered in an unprecedented economic growth in Hong Kong. According to the figure newly released by the HKSAR Government, GDP in real terms surged by 10.4% year-on-year in the third quarter of 2000, on the back of double-digit growth of 14.2% in the first quarter and 10.9% in the second quarter. It is estimated that the growth rate for year 2000 as a whole will stand at over 10%. At the same time, the unemployment rate has fallen further to 4.8%, from the peak of 6.3% recorded in the mid-1999.

Hong Kong economy is gathering steam towards a broad-based recovery. On the one hand, external trade has shown hectic growth on all aspects. In particular, domestic exports rebounded by 10.6% in the first nine months, reversing the two-year-long downtrend. On the other hand, domestic demand has picked up markedly. The 6.4% year-on-year increase in private consumption expenditure (PCE) during the first three quarters of 2000 has manifested the ongoing improvement on retail business. More impressively, encouraging business outlook has rendered a boost to the expenditure on machinery and equipment (EME), which soared by 24% growth in the first half year of 2000 and a further 27.8% in the third quarter, posing a stark contrast to the sharp decreases in 1998 and 1999.

Another intriguing development in 2000 is the path-taking progress in structural transformation, which is characterized by a investment boom on innovation and technology, accelerated corporate restructuring, quick adjustments on the part of financial markets, the rise of entrepreneurial culture, and the speeding up of deregulation especially in telecommunication markets. Suffice it to say New Economy has gained ground in Hong Kong as our economy has quicken its pace towards the technology-driven, high value-added direction.

Looking ahead, Hong Kong economy will remain on a fast track, propelled further by the upswing in domestic consumption and fixed capital formation. Now that the cost adjustment has nearly consummated, firms are shifting the focus of their pursuit from cost-effectiveness to value adding, thus paving the way for a raise on employees' remuneration. The Government's decision to freeze major categories of livelihood-related fees also conduces to the accrual of citizen's dispensable income, enabling them to better benefit from the economic growth and loosen the purse strings. On the other hand, expenditures on machinery and equipment, especially IT spending, are expected to be on a steady up-trend, to the extent that Hong Kong companies are stepping up their readiness for the New Economy Era, and the investment costs are relatively low due to the protracted deflation.

Externally, international environment still bodes well for Hong Kong, even though some uncertainties are looming large. The recent oil price hike, though having brought about adverse impacts, seems unlikely to derail the world economy as the Oil Crises of 1973-74 and 1979-80 did, given the different underlying causes and the reduced petroleum dependence in oil importing countries. The U.S. economy is engineering a smooth "soft landing" through monetary tightening up and asset market adjustment. Hopefully, it will continue to give a lift, though much moderated, to the global economic growth rather than put on the brake. In the near term, the strengthening of domestic demand will make further headway in both Western Europe and Asia. This, coupled with the promising rejuvenation of Japanese economy and the brisk growth of intra-regional trade in the East Asia, will help to offset the repercussions of a slackening American economy.

Moreover, now that the U.S. interest rate has almost topped out in consequence of six increases since the mid-1999, it is much likely to reverse the course with economic slowdown deepening. Surely enough, if the interest rate of Hong Kong Dollar moderates in tandem with the U.S. Dollar, local monetary conditions will be eased and financing costs alleviated, thus giving an additional boost to the recovery of domestic consumption and investment. At the same time, since the discrepancies between Euroland and the U.S., in respect of both underlying economic performance and interest rate level, are narrowing, a turnaround in the fortune of Euro is around the corner. Should this happen, a softer Hong Kong Dollar - as a result of the linkage exchange regime, would also favour the exports of our commodities and services.

As always, " China factor" will continue to buttress up Hong Kong economy as the Mainland is expected to achieve an even buoyant economic growth of 8.5% in 2001, while keeping inflation at bay. Moreover, with China's accession to WTO materialized, Hong Kong companies will enjoy not only immense opportunities for trade and investment, but also favourable business environment characterized by increasing transparency, ameliorated regulatory framework, and better compliance with the international norm.

To sum up, the economic outlook for Hong Kong remains sanguine. However, set against a much elevated base of comparison, the forecast GDP growth rate is expected to settle to a more moderate single-digit level, say 5% in 2001. Due to the lingering structural unemployment, unemployment rate may keep standing at above 4%, while the decline in general price levels will continue to moderate before the GDP deflator comes back to the positive territory around mid-2001.

The macro-economic conditions of 2001 will offer a breathing space for Hong Kong to press ahead on restructuring. As the prospect for profitability is improving and the price levels are favourable, local business can take this opportunity to pursue capital deepening through increasing outlays on equipment and technology, while uplifting productivity through reengineering modus operandi, streamlining management and upgrading human resources. Relieved form the task of pump-priming economy, the Government can now devote more energies to positioning Hong Kong for long-term sustainable development, especially through formulating a manpower development strategy and strengthening the soundness of public finance. Moreover, the new developments in world economy will provide a driving force for Hong Kong to further diversify its exporting markets. While exploring the integrating European market and stepping up participation in the intra-regional trade in East Asia, Hong Kong companies should not fail to capitalize on the vast opportunities stemming form China's accession to WTO and the Developing the West campaign, so as to gain a firmer foothold on our hinterland - which nowadays provides not only production base, but also market outlet and strategic partnership for Hong Kong.