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Suzanne Harrison

The Hong Kong economy is either undergoing a necessary hiccup or is on the brink of a 'dangerous' year, according to conflicting predictions.

The economic ambiguity is reflected in recent forecasts of gross domestic product growth for this year ranging from 1.5 per cent to 4.1 per cent.

In March, the Government forecast 4 per cent growth, down from 10.5 per cent last year.

Recent consensus estimates are similar to the Government's outlook but, slowly, the downgraders are coming out to play.

HSBC has announced a dip in growth estimates for this year from 3.4 per cent to 2.2 per cent, with inflation down to nil from 0.5 per cent. ABN Amro this week suggested a 1.5 per cent real GDP full-year growth rate, saying export declines have been on the radar since last October.

ABN Amro economist Eddie Wong expects zero quarter-on-quarter growth in the second quarter of this year.

HSBC economist Geoffrey Barker said: 'Hong Kong's economy is heading towards yet another difficult, if not dangerous, year.

'The rapidly deteriorating global economic environment puts Hong Kong in danger of more turbulence.'

By this, economists are referring to the slowing United States economy and Japan's inability to dig itself out of a 10-year slump.

Despite the US economic slowdown, reports on the SAR have largely remained positive because of its relationship with the booming Chinese economy.

Mainland goods re-exported through Hong Kong boost the SAR's trade and GDP figures.

But Chinese exports are also falling prey to external forces.

About 70 per cent of mainland exports are bound for the US.

Furthermore, the country's long-awaited accession to the World Trade Association is becoming a guessing game.

Now it may not be agreed until the end of the year.

'It is a mathematical impossibility to get 4 per cent without an acceleration of growth in GDP,' Mr Barker said of Hong Kong yesterday.

Yet a dip in growth seems inevitable. Domestic demand is lacklustre, with property prices lagging despite a dramatic reduction in interest rates.

Consumer prices have been falling since November 1998, and estimates for a return to inflation have been pushed back.

But not all forecasts are gloomy.

Morgan Stanley Dean Witter's Andy Xie takes a more relaxed view of Hong Kong.

While he expects the next quarter to reflect lifestyle adjustments from US punters who have lost money on the tanking stock market, he sees no cause for concern.

The Government and Morgan Stanley, which sticks to its 4 per cent forecast, had taken the impact of these adjustments on trade and domestic demand into account, he said.

'I think we probably will not see a government downgrade,' Mr Xie said.

'If US consumer sentiment goes down dramatically, then we have a problem, but that can still be revived by interest rates [cuts].'

The issue for Mr Xie is that the Government can keep the economy wherever it wants to, saying it budgeted 2 per cent of public money to support the economy this year.

'Hong Kong is just a property problem . . . the other problems [the US and Japan] are not that significant . . . they just make things a little harder to deal with,' he said.

Until the Government steps in to make a GDP call, if at all, the outlook for growth will be a waiting game focused on monthly US data.



Doubters fear hiccup may point to HK flu