THE weak United States dollar is due to have long-term negative implications for Hong Kong's inflation rate and could cause cost overruns in the airport project.
The Bank of East Asia's economic research department says conventional wisdom suggests that the positive gains from the weak dollar, and weak Hong Kong dollar through the peg, would be higher tourist arrivals and better exports.
Depressed economic conditions in Japan curtailed visitor arrivals and meant this benefit did not come through this year to any great extent, says the bank.
In the second half benefits from higher visitor arrivals may be expected should the prospects for the Japanese economy brighten.
The weak dollar has stimulated exports, up two per cent in the last quarter of 1994 and 11 per cent in the first quarter of 1995, the first double-digit growth recorded since 1988.
But this needs to be set against the long-term negative impact of the importation of inflation via Japanese goods and materials.
'Although the appreciation of the Japanese yen and the weak Hong Kong dollar benefit Hong Kong's economy through an increase in Japanese visitor arrivals, per capita spending and retail sales and increased domestic exports, these are also key factors simulating imported inflation,' says the bank economic research unit. Japan is the second largest importer to Hong Kong, providing 16 per cent of the total.