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Bank of China tips growth rate of 2.8pc

The economy is expected to grow by 2.8 per cent next year, with exports continuing to buoy the recovery, the Bank of China said in a report yesterday.

'Assuming no significant impact arises from geopolitical tension, it is expected that the Hong Kong economy can benefit from slightly greater external momentum and achieve moderately higher growth in 2003,' the report said.

The bank expects exports next year to expand 7.8 per cent, with re-exports surging 9.5 per cent.

Deflation is expected to be 'moderate' and domestic demand 'will still be weak' next year, although the bank expects business investment to pick up.

However, it forecasts the unemployment rate rising to 8.8 per cent. It stands at 7.1 per cent.

The government expects gross domestic product to grow 2 per cent this year.

It said gross national product increased by 1.2 per cent in real terms in the third quarter over a year earlier, reversing the 0.1 per cent decrease in the second quarter.

Accounting firm Ernst & Young said yesterday it expected the budget deficit to further balloon to $76.3 billion at the end of the financial year in March. Owen Chan, a tax services officer at the firm, said it was doubtful the government could keep the deficit to its $60 billion target and that it could top $80 billion if shortfalls in stamp duties are included.

He urged the administration to privatise assets estimated to be worth $200 billion, such as the airport and the railways.

The firm also recommended tax measures, including a 1 per cent rise in profits tax and the salaries tax rate, and a 10 per cent cut in the personal tax-free allowance as ways to fight the deficit, which rose to $72.4 billion for the first seven months of the year. Mr Chan also recommended bond sales as a way to raise money.

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