EIU forecasts zero growth for HK economy

PUBLISHED : Tuesday, 06 June, 1995, 12:00am
UPDATED : Tuesday, 06 June, 1995, 12:00am

IN one of the gloomiest reports yet, issued on the Hong Kong economy, the Economist Intelligence Unit (EIU) says 1997 will be a year of zero growth and stagnant private consumption.

The unit spotlighted the 1997 factor as a major influence on the economy, with emigration rising and investors exercising caution ahead of the takeover.

'Real annual growth exceeded five per cent in 1994 for the fourth year in a row but this trend will not be sustained due to the momentous political change that will occur in 1997,' the unit concluded.

While integration with China offered opportunities, the unit said these were not going to be strong enough to prevent gross domestic product growth sinking to zero.

The unit expected to see investment tumble, as a 'wait and see' mentality took over.

'Public investment is set to maintain a high growth rate, but in 1996-97 this expenditure will be accompanied by an expected fall-off in private fixed capital investment.' It predicted that gross fixed investment growth would slow from 13 per cent growth last year to 10 per cent in the current year, down to 4.2 per cent next year and then fall by one per cent in 1997.

A growing trade imbalance is also on the cards, according to the unit.

The growth in both exports and imports is expected to slow to 8.4 per cent from 10.2 per cent and 10.3 per cent this year, and by 1997, expected growth will be down to seven and 6.8 per cent.

The trade gap will widen from US$10.4 billion in 1994 to $15.9 billion this year and on to a deficit of $18.4 billion in 1997.

When invisible exports such as financial services are taken into account, the resulting current account balance would move from a $2.9 billion surplus last year to a deficit of $0.3 billion this year.

However, the unit expects it to have recovered to be marginally in balance by 1997.

The worsening economic picture does not mean the average Hong Kong citizen is about to fall down the prosperity ladder.