Hong Kong has seen the worst of the economic downturn, Tung Chee-hwa said yesterday. In a speech on the state of the economy, the Chief Executive said he was confident the worst was 'behind us'. But he admitted a full recovery was still 'some time away'. Mr Tung struck the positive note as the Hang Seng Index closed at 10,428.82, up 465 points, amid a string of positive factors including interest rate cuts and a revival in the property market. This is despite a further rise in unemployment, a worse negative economic growth forecast and signs of deflation. Speaking at a French Business Association seminar, Mr Tung admitted his administration had underestimated the severity of the financial crisis. The turmoil, he added, had helped speed up the bubble economy's adjustment process. Mr Tung said the correction had been very rapid and painful, though necessary. A full recovery, he said, depended significantly on the economies of Japan, the United States and Europe. 'The economic recovery of Japan is really essential for us all to move out of this difficult situation,' Mr Tung said. 'The continued growth in the economy in the US and in Europe is also very, very important to us in Asia.' Mr Tung was adamant there were favourable factors for the SAR. 'Our prices have adjusted, we are becoming more competitive and our banking system has always been very sound and continues to be very sound,' Mr Tung said. 'Our corporate bodies have always been very conservative managing their balance sheets and the Government has always been very conservative in managing the balance sheet. 'I believe we are in a much better position than many of the other Asian economies to get the recovery going.' Noting a full recovery might still be some time away because Hong Kong relied heavily on the external factors, he said: 'I believe the worst is now behind us.'