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US economic recovery will provide trade boost

by Frederick Lam
Mr. Frederick Lam is Deputy Executive Director of the Hong Kong Trade Development Council. He sets the Council's strategy and policy as it relates to the international promotion of Hong Kong's products and services. He also manages and develops the Council's extensive portfolio of exhibitions and trade publications, as well as overseeing the Council's management and support services. Mr Lam is an Executive Committee member and Chairman of the Financial Sub-Committee of the Hong Kong Shippers' Council. Before joining the TDC in 1986, Mr. Lam
served for many years in the Hong Kong Government. He is at present a Member of the Advisory Board of the Hong Kong Export Credit Insurance Corporation, a Member of the Government's Film Services Advisory Committee, and is Vice-Chairman of the Hong Kong-Austrian Association and a Member of the Board of Governors of the Hong Kong Arts Centre.

Contraction of the US economy since the second quarter of 2001, aggravated by the terrorist attacks on the US and subsequent events, has severely undermined US consumer confidence. The global trading environment has worsened, in want of a recovery led by the US. In all likelihood, Hong Kong's merchandise export declines will continue into the first quarter of 2002.

US economic growth is likely to regain its path by mid-2002, marking the return of consumer confidence and propping up the world trading environment. In this context, Hong Kong exports should regain momentum in the second quarter of 2002, with growth likely to pick up in the second half.

For 2002 as a whole, Hong Kong exports could perform better than generally expected at present. Total exports, as reflected in trade statistics, are expected to rise by 2% in value and 3% in real terms. Domestic exports are likely to fall by 6% in value and 4% in real terms, but re-exports are projected to register nominal and real growth rates of 3% and 4% respectively. But in view of the highly-competitive trading environment, prices of Hong Kong exports will remain depressed. The prevalence of direct shipments from the Chinese Mainland to foreign markets will also remain a dampening factor for growth of Hong Kong re-exports.

Hong Kong exports of services are more reliant on Asia than on merchandise trade. Despite the expected continual rise in offshore trade, Hong Kong services exports are likely to post a moderate gain in 2002. A mild recovery in trading activities and an improvement in the tourism sector will be the main contributors.

Globally, despite the present setback in demand in the US and other key markets of Hong Kong, a mild recovery could be likely around mid-2002, starting in the US and trickling through to Europe and beyond. A combination of monetary and fiscal stimuli could lead to a demand-led recovery in the US by mid-2002, which will provide a fillip to import demand amid a low inventory level. In the EU, there is also room to further loosen monetary policy to boost the faltered economy, notwithstanding restrictions in fiscal initiative leverages. Japan's economy, on the other hand, will be dragged down by its domestic troubles, making it an unlikely source of global expansion in the near term.

The economic outlook for other Asian economies will hinge upon the timing and degree of a global recovery. Given the likelihood of a global revival by mid-2002, it is probable that most regional economies will start to rebound in the latter half of 2002.

In the case of the Mainland, while slackening external demand will take a heavier toll on Chinese exports in the first half of the year, the overall impact on the economy is not expected to be substantial, and growth will continue to hold up well on the back of sustained domestic demand. Continued expansion of the Chinese economy is particularly important to Hong Kong, which has very close links with the Mainland.