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Recovery midway through 2002 - HKGCC

Shippers Today's Annual Industry Forecast has been a traditional feature in the January-February issue for several years now. We invite community leaders from different industries and sectors to do a review of the past year's events. Based on the results, we ask them to set out a forecast for the coming year or two.

Anchoring the Annual Industry Forecast is the Hong Kong General Chamber of Commerce's Business Prospects Survey. The survey is also an annual undertaking, conducted in October and November, and taken from a poll of the Chamber's 4,000 corporate members. Average response rate is 12%.

This year's survey results revealed very real concerns about the likely trend in the SAR's economy but also showed that there was widespread confidence in the benefits of China's entry to the WTO.

The Chamber expects the local economy to grow by about 2% in 2002 after experiencing zero or slightly negative growth in the current year.

"The performance of the local economy in 2002 should be a mirror-image of the outcome in 2001, with a relatively weak performance in the first six months followed by an improvement in the second," Chamber Chief Economist, Ian K Perkin, said.

"The Hong Kong SAR will experience a short, sharp recession into the early months of the New Year, but thereafter will recover along with the US and global economies and global trade," he said.

"The only caveat we place on this forecast is that there is no further deterioration in the global political situation, as a result of any setbacks in the current US-led campaign against terrorism.

"Continued good growth on the Mainland, as well as China's entry to the WTO should provide a positive background for a recovery in the Hong Kong SAR as the year progresses," he said.

In summary, the Chamber is forecasting that -

  • Real GDP growth for the year, as mentioned above, will be around 2%, with negative growth in the first six months of the year followed by a more positive outcome in the second half.

  • Nominal GDP growth for the 2002 calendar year will be 3%, but deflation will disappear as the year progresses. Inflation for the full year should be slight, averaging up to 1%.
  • Private consumption spending will show moderate positive growth of 2.5%, about the same as in 2001.

  • Government consumption spending will continue to grow, but at a slower pace than in 2001. At 3% real growth for the year, it will be down on the 4.5% growth expected for 2001.

  • Investment spending will pick up, with positive contributions from both the private and public sectors and will expand by 4%, compared with the expected 1.7% growth in 2001.
  • External merchandise trade will again decline slightly, with exports to be a negative 2.2% in real terms and imports to decline by a more moderate 1.6%.

  • External services trade will, however, continue to expand, with exports of services expected to grow by 3% and imports by 1%.

  • The GDP deflator will show modest inflation of up to 1%, compared with a decline in prices of 1% in 2001.

The global economy and trade were showing marked signs of a slowdown even before the negative impact on the world economy of the events of September 11 and the subsequent launch of campaign against terrorism by the US and its coalition partners.

This slowdown, which was especially marked in the US, but also in Europe and Japan, had a negative impact on many of the open economies of the East Asian region, including Hong Kong.

One major exception to the negative impact was the Mainland of China, where continued domestic stimulus enabled the economy to maintain a positive rate of GDP growth of around 7%.

Even the Mainland was, however, adversely affected by the slowdown in world trade growth and this weakness in global trade is expected to continue at least into the opening six months of the New Year.

With this sort of background, the East Asian economies are expected to see continued weakness in the first half of the New Year, followed by a better outcome in the second half.

Hong Kong is expected to follow this trend.

The one concern is that the global political situation does not see any further setbacks that impact negatively on the outlook for world trade, investment and economic growth.