There is no point in pretending that the Year of the Rabbit will get off to a flying start this month. Some businesses which have managed to struggle through the recession face the unenviable prospect of having to close down or lay off staff as soon as the Lunar New Year celebrations are over. Most forecasters expect the effects of recession and unemployment to get worse before they get better. If the bottom has been reached, as the Chief Executive said last month, the SAR - as he added - is likely to move sideways for some time to come. It will be a year of transition in which the SAR will continue to be tested on a variety of fronts. Just as it took time for the full effects of the Asian crisis to be felt here, so it will be months before people begin to get concrete evidence that the economic decline is over. During that period, the social effects of recession will probably be felt more sharply, increasing the prospect of tension within the community. This will obviously not be helped by the argument over the Court of Final Appeal's prerogatives and its right of abode ruling, particularly since the need to stand by the legal system runs counter to the concern of many people about an influx of mainland immigrants at a time of high unemployment. The Government's policy must be to reassure the community that its rights and freedoms are not going to be called into question, and that it backs the court's position. The Chief Executive's caution about the economy is understandable, especially given the challenge the administration faces in framing a budget which will respond to the problems of society without opening the deficit doors too far. Recovery What is surprising is that some modest signals of impending recovery can be sighted through the gloom. Not all retailers are doing as badly as the overall trend suggests - at the top end of the market one European luxury goods firm was brave enough to splash out on a glittering party this week. We may have to wait until the millennium before things get back to something like normal, but a brief glimpse of how things used to be, is useful reminder that life will not always be as tough. Even some of the worst affected countries in the region are claiming to see improvements. Thailand seems to be on the road to recovery, as is South Korea. But, as always, the catalysts for improvement are the United States and Japan - with Washington hoping that Western Europe will also play its part. Tokyo continues to promise action, including reform of its banking system, but as a senior American official commented wearily at the recent World Economic Forum in Davos, we have heard so many pledges from Japan that it would be best to wait and see what actually happens. Attention The great American boom holds the key to avoid recession. Any significant slowdown in the consumer of last resort would send the fledgling Asian recovery into reverse and, through its effect on China's economy, knock Hong Kong down several pegs. With President Bill Clinton freed of the impeachment threat, it must be hoped that the administration in Washington turns its attention to helping to evolve a financial system which can restore capital flows to Asia without the runaway movements which led to the present crisis. At the same time, the President must stand firm against any growth of protectionism - and make the political dangers of undermining the World Trade Organisation clear to his domestic opponents and to Beijing. Asian and European officials meeting at the weekend rightly drew attention to the dangers of a rise of protectionist pressure. It must be hoped that by next Lunar New Year Hong Kong will be recording renewed growth, declining unemployment, and perhaps even a budget surplus. Painful as recession is, it is worth remembering that not all its effects have been on the debit side. A restructuring of the economy was inevitable at some point, and lessons learned from the bursting of the property bubble should lead to the conclusion that the foundations of the economy should be diversified, and put on a firmer footing. Land will always be at a premium, and renewing land sales in April is another welcome move, provided the speculation of pre-handover days remain things of the past. What has been brought home in the past 12 months has been how dependent Hong Kong's well-being is on external factors. That makes it all the more important to be able to adapt to those factors, and to ensure that the population is as well-educated, stable and internationally-minded as possible. Pursuing that road must be the administration's long-term task to be followed in the Year of the Rabbit and all the other years to come.
