MPF hurts retail recovery

THE INTRODUCTION OF the Mandatory Provident Fund (MPF) is expected to hinder a recovery in retail sales this year.

Andy Kwan, associate professor in the department of economics at the Chinese University of Hong Kong, said retail sales were very much affected by disposable income. Workers would be taking home less in their pay packets and would adjust their spending.

Pension fund contributions were another factor in an economic environment clouded by a slowdown in the United States and relatively high unemployment in Hong Kong, he said.

This would hit consumer confidence. Analysts said interest rate cuts would, however, bring long-term relief for the property sector and mortgage-holders as the cost of borrowing fell.

Ian Perkin, chief economist of the Hong Kong General Chamber of Commerce, said: 'We have seen some improvement [in retail sales] for 1999, but in the long- to medium-term context it is not a big improvement. Last year, we were running at about HK$40 billion to HK$45 billion below the peak level in 1996 and 1997. That is a lot to take out of a market and everything points to it staying flat.'

Last year, retail sales increased by 4 per cent in value and 8 per cent in volume over the previous year, according to provisional figures released by the Census and Statistics Department. For the last quarter, however, total sales volume was down 2 per cent compared with the preceding three-month period.