The Hong Kong economy is showing clear signs of recovery and the Government should be able to slash its forecast $36 billion deficit by half this year, according to a visiting International Monetary Fund team. The mission, in its preliminary findings, said the IMF's forecasts for the economy had been significantly upgraded in view of the positive signs that had emerged this half. These include a sharp rise in private consumption and a strengthening of re-export activity. 'While private investment is likely to remain weak, higher public investment, as well as a further strengthening of exports will support activity,' the mission said. 'Against this background, GDP growth of 1.25 per cent appears achievable. As the adjustment in prices continues, the Consumer Price Index is projected to decline by 4 per cent for the year as a whole. Unemployment will remain at about the present level.' It said the economic recovery, increased land-premium and stamp-duty revenue would help reduce the deficit this year. The group forecast GDP growth for the financial year to March 31, 2001could reach 3.5 per cent, allowing unemployment to fall modestly. It pointed to positive factors that included Beijing's imminent entry into the World Trade Organisation, easing of monetary conditions as deflation declined, and the continued strengthening of the global economy. The accession to the WTO, it said, would bring new opportunities for Hong Kong, which is well placed to assist the restructuring of the mainland's financial and enterprise sectors. The report, released by the Government yesterday, was compiled before third-quarter GDP figures were published last week. The Government revised its original yearly growth rate of 0.5 per cent to 1.8 per cent in the light of a faster-than-expected rebound in the third quarter. A government source said: 'The latest figures were not available to the IMF mission when they were in Hong Kong. Also, the Government is bound by confidentiality rules in handling statistics. 'Their [the IMF] forecast reflected market sentiments at that time.' The source said there was concrete data suggesting a smaller deficit this year, but added it was too early to put a more definite figure now. The assessment was made by the IMF mission after a consultation mission with the mainland in respect to Hong Kong, which involves a review of the SAR's exchange rate, fiscal and economic policies. It commended Hong Kong for being 'one of the most transparent, well governed and least interventionist places to do business' and stressed that the policy of positive non-intervention should remain. Financial Secretary Donald Tsang Yam-kuen welcomed the IMF assessment, saying the mission 'has made a fair and balanced assessment of the economy and the policy framework in place'. 'We welcome the IMF's endorsement of the Government's policy approach in mitigating the effects of the Asian crisis on the domestic economy and restoring economic growth,' Mr Tsang said.