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Kelvin Chan

Asia's economies will see a recovery this year with China leading the way, but Hong Kong will still trail the pack, according to forecasts by investment bank Credit Suisse First Boston (CSFB).

The mainland economy will expand by 8.3 per cent this year, after growing 8 per cent last year, while Hong Kong's gross domestic product will increase 2 per cent, said Dong Tao, chief Asian economist at the bank.

'We think a global recovery has already started,' Mr Tao said yesterday. 'We anticipate Asia to see acceleration of GDP growth this year.

'For Hong Kong, the good news is we will see a cyclical turn. GDP will pick up, retail sales will accelerate [but] structural problems have not been resolved.'

These problems include high unemployment, falling prices and the depressed property market. Mr Tao expects the jobless rate to stay between 6 and 7 per cent this year, with wage levels effectively falling 4 to 8 per cent because people are doing more work for the same salaries to compensate for colleagues who have been laid off.

He also expects the oversupply of flats to remain high despite the government's announcement last year of measures to boost property prices, including suspending land sales and halting the Home Ownership Scheme.

The structural problems mean more bad news for the deficit, which reached $70.8 billion in the April to November period. The company estimates that the deficit will reach $88 billion this financial year.

Without income from land sales and lack of substantial cost-cutting measures, 'the fiscal reserves are eroding very rapidly', Mr Tao said.

He estimated that the government is spending $11 billion to $13 billion more per month than it is taking in.

At that rate, the government's fiscal reserves could fall below $200 billion by the end of this year. At the end of November, the reserves stood at $301.7 billion.

He warned that the SAR's credit rating would fall and speculators could attack the Hong Kong dollar again if the deficit failed to be addressed.

Meanwhile, China's economy will power ahead this year - leading Asian growth - at a rate of 6.7 per cent, CSFB forecasts.

Consumer purchases would be a growing force behind the mainland's economic development, with people switching their attention from property to vehicles, Mr Tao said.

'Consumption will continue to be the pillar of China's fast-paced growth,' he said.

MIXED FORTUNES

Credit Suisse First Boston predicts that the mainland economy will expand by 8.3 per cent this year

Hong Kong's GDP is forecast to increase by 2 per cent

The SAR's unemployment rate is predicted to be between 6 and 7 per cent and the budget deficit tipped to reach $88 billion



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