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Sandy Li

Hong Kong narrowly avoided falling into a recession this autumn, according to better-than-expected economic figures released yesterday.

However, the Government still cut its growth forecast for the year from one per cent to zero, warning that the economic impact of the September 11 terrorist attacks in the United States was yet to be fully felt.

The economy contracted 0.3 per cent in the third quarter compared with the same July-September period last year, but grew 0.4 per cent when compared with the April-June 2001 period.

The statistics mean Hong Kong has so far escaped two successive quarters in decline - the widely-used definition of a recession - whether measured on a quarter-on-quarter or year-on-year basis. Revised figures showed that in the second quarter of 2001 the economy shrank 1.4 per cent compared with the first quarter, but grew 0.8 per cent year-on-year.

The Government said it expected the economy to shrink 2.5 per cent, year-on-year, in the fourth quarter - suggesting a recession was postponed, not averted.

Government economist Tang Kwong-yiu said: 'By and large, the real impact of the September 11 incident has still to substantially filter through.

'There are still lots of uncertainties and downside risks prevailing which may affect the economic performance this year.'

Financial Secretary Antony Leung Kam-chung said the figures reflected the slowdown in the US as well as Europe and Asia.

'While the immediate future is still a bit uncertain, and chances are there will continue to be economic difficulties in the coming quarters, one shouldn't be too pessimistic about our future because, after all, it is highly likely that the US economy will rebound sometime next year,' he said.

'The mainland economy will continue to grow at a fairly fast rate, and Hong Kong, being the major gateway to China, will stand to benefit. I am relatively optimistic about our medium and long-term future.'

The decision to cut the growth forecast for the year was widely expected, but many economists had predicted a larger reduction, taking the figure into negative territory.

Mr Tang rejected suggestions the zero-growth forecast was too optimistic, saying the estimate was not far from many economists' predictions of a 0.3 per cent contraction.

There was bad news for business, with a prediction that deflation would be worse than expected. The Government is forecasting prices will drop 1.6 per cent this year, compared with the previous estimate of 1.3 per cent.

The autumn GDP figures surprised many economists, with the consensus forecast being a quarter-on-quarter decline of about two per cent. Economists also had predicted the forecast for the year as a whole to be negative.

A regional economist at Macquarie Bank in Hong Kong, Li Lian Ong, said: 'Clearly the figures were much better than the market had expected. Most people were expecting a contraction in GDP of about two per cent and, while we weren't as bearish, we had still expected a fall of about 1.6 per cent.'

Others were more cautious.

'You can't read anything into these numbers about a recovery,' said the chief economist at the Hong Kong General Chamber of Commerce, Ian Perkin, who discounted the chance of a consumer-led recovery.

'For consumers, they're already feeling the recession in many ways. Many have been under a wage freeze for a long time, property values have fallen significantly so they may be having difficulty in repaying mortgages and unemployment has been rising.'

Figures released yesterday suggest the Government was still on track to record a budget deficit of more than $50 billion for the financial year. It said the deficit for the first seven months was $63 billion. However, in the second half of the year, more tax receipts tended to be collected.

The Government also revised its economic figures for the spring (April-June) 2001 quarter. It said GDP rose 0.8 per cent year-on-year and fell 1.4 per cent quarter on quarter. In its first estimate, made in August, it said GDP rose 0.5 per cent year on year and fell 1.7 per cent quarter on quarter.



Third quarter beats expectations, but Government warns that September 11 has not been fully felt