Updated at 4.23pm: Financial Secretary Antony Leung Kam-chung predicted the economy would grow by one per cent in the next year during his Budget speech on Wednesday afternoon. He said deflation would persist and unemployment would continue rising, but Hong Kong's situation would improve following a recovery by European Union and United States economies. ''While the medium and long-term outlook is promising it will take time for our economy to recover. Economic restructuring will continue for some time,'' said Mr Leung. In 2001 gross domestic product grew by 0.1 per cent, dropping more than 10 per cent from 2000. In addition the fiscal deficit reached $65.5 billion, equivalent to 5.2 per cent of the GDP. Mr Leung said: ''Deflation continued with the composite consumer price index falling by 1.6 per cent last year. In the [last] quarter the seasonally-adjusted unemployment rate rose to 6.7 per cent - its highest since the 1980s.'' Fiscal reserves would reach $369.8 billion - roughly equivalent to 19 months of Government expenditure - by March 31, he said. Exchange fund surpluses are currently $300 billion.