Trade growth prospects will be increasingly dependent upon the United States and the mainland, the Government said. It believes demand from the two largest trading partners for goods and services will offset the fall in demand caused by the economic downturn in the region. The downturn had been 'much deeper and wider than originally expected', the Government said. But it expects sustained growth in the mainland and US should continue to support the trade which accounts for more than half of all exports. The impact of regional currency depreciation on exchange rate movements and changes in the cost of production - the two most important factors underlying the price competitiveness of products - will be limited. This is because: Hong Kong offers a different product mix than its regional rivals; large currency depreciation will raise inflation and the cost of production among East Asian rivals; the cost of production in Hong Kong - particularly for materials, wages and rentals - is expected to remain soft this year; and, the large currency depreciation in East Asia creates pressure for productivity improvements, product upgrading and upmarket movement in Hong Kong and the mainland. Imports are expected to slow to about four per cent this year following an increase of about seven per cent in 1997. Of this, retained imports are forecast to rise by one per cent, compared to eight per cent last year because of a slump in retail demand, weaker local consumption and a fall in tourist spending. The opening of the new airport in July could lead to a modest revival in tourism. There may be a slower intake of merchandise because of the economic slowdown. Exports of services are expected to grow 3.5 per cent this year from virtually no growth in 1997. Offshore trading is expected to increase in line with the shift in the structure of Hong Kong's trade.