Hong Kong has hit the bottom of the economic slump, according to a bullish assessment of the SAR's recovery prospects by investment bank Goldman Sachs. 'In view of the burgeoning signs of global recovery, we believe we should now be at the trough of the current economic cycle,' senior economist, Greater China, John Anderson wrote in a report released yesterday. The report conceded that merchandise trade data in January had not shown any signs of export recovery and the gap between China's export growth and Hong Kong's share of China's re-exports continued to widen, continuing a trend which began in 1992. The bank also predicted last month's trade data, due out today, would show a 13 per cent drop in total exports year on year and a 14 per cent contraction in imports. However, Hong Kong's service exports, which account for 27 per cent of gross domestic product, had remained competitive and would pick up as long as the global trade cycle and financial conditions continued to improve. The bank predicted Hong Kong's merchandise export sector would resume growth in the second half as regional exports recovered and China's import numbers improved on the back of World Trade Organisation entry liberalisation. Hong Kong's exports would grow 2.5 per cent on average this year. Mr Anderson said China's exports would grow at least 10 per cent this year, after averaging 12 per cent export growth in the past five years. 'This will be sufficient for Hong Kong to cross over from falling re-exports through to rising re-export trade,' he said. Mr Anderson said the same pessimism regarding Hong Kong's ability to participate in the apparent regional and global economic upturn at the end of 1998 was being expressed today. Then there had been the same alarm expressed about Hong Kong's ability to restructure its economy, the stability of the Hong Kong dollar peg and weakness in the property and retail sectors. 'These things were present now and were present then, but they didn't stand in the way of recovery,' Mr Anderson said. 'Hong Kong had one of the highest turnarounds in terms of trough to peak of any of the Asian economies, from minus 5.3 per cent to 10 per cent real growth at the top of the cycle in 2000 . . . it was really a stellar performance by Hong Kong despite all the structural problems.' This year, the investment bank forecasts 2 per cent growth and 5.5 per cent growth next year. When last year's anaemic 0.1 per cent growth rate was taken into account, this would represent a 5.4 per cent gain from peak to trough. 'Our fear is a lot of investors and market participants are simply too negative . . . in terms of the Hong Kong equity market and the Hong Kong dollar,' he said. Most growth would occur in the traded or externally oriented sectors, as in the last economic recovery period, with domestic demand likely to remain anaemic at minus 0.4 per cent this year. Even though interest rates coming out of the Asian financial crisis were falling and interest rates were likely to rise this time around, in absolute terms, interest rates were still much lower now, Mr Anderson said. Citibank economist Ellen Cheuk forecast last month's exports would decline by 15.5 per cent and imports would fall by 18.4 per cent. Citibank cautioned that the spectre of an interest rate rise in the United States 'comes at an awkward time for Hong Kong, threatening higher nominal interest rates as the economy generally lags the regional economic recovery'. National Australia Bank economist Kevin Lai said it would be two or three months until Hong Kong really hit bottom in terms of imports and exports. Last month's exports were likely to contract 15 per cent and imports would fall 21 per cent, he said.