Growth forecasts slashed as fallout from attacks in the United States takes toll

At least two more financial institutions have downgraded Hong Kong's full-year economic growth forecast as the fallout from the United States' terrorist attacks continues.

Economists now agree a recession is inevitable.

They say the SAR's faltering economy has suffered a major setback, with trade and exports to the US floundering.

Consumer confidence and investment have suffered severe blows and the effects are seen as likely to continue throughout next year.

Some economists even believe the repercussions could extend to the mainland and introduce uncertainty into one of the fastest-growing economies in the world.

Yesterday ABN Amro Hong Kong revised its estimate of the SAR's gross domestic product to minus 0.2 per cent from zero growth.

Also, Bank of East Asia forecast a zero growth rate instead of 1 per cent growth.

The revision followed brokerage Lehman Brothers' decision on Friday to slash its economic growth forecast to minus 0.6 per cent from plus 1.3 per cent.

The Government shared the gloomy view, as Financial Secretary Antony Leung Kam-chung conceded an adjustment of the SAR's GDP was in the pipeline.

'Given the existing circumstances, we see the need to adjust lower the full-year GDP forecast,' he said. 'But as to how much we will tell you in due course.'

HSBC is revising its forecast of 0.4 per cent GDP growth and the update is expected to be available in the next few days.

According to ABN Amro, Hong Kong and Malaysia will follow Singapore and Taiwan's recession trail this year.

The brokerage said Hong Kong was vulnerable to recession because of its dependence on trade.

A recession, which means negative economic growth for two consecutive quarters, is imminent, given the SAR's GDP shrank 1.7 per cent in the April-June quarter and is likely to shrink further in the quarter to September 30.

It would be the second recession in three years.

ABN Amro said exports, trans-shipments, offshore trade and outward trade flow combined was about twice as big as Hong Kong's GDP.

'It will almost certainly be severely affected by a consumption-led recession in the US,' it said.

The Government is due to announce August import and export figures today.

ABN Amro expected the SAR's exports to shrink 6.5 per cent year- on-year in August and imports 6 per cent.

Keeping this year's GDP forecast unchanged at zero per cent growth, UBS Warburg is revising next year's forecast, according to executive director Andrew Look.

'Going forward, the World Trade Centre tragedy hurt demand for Hong Kong's big-ticket items or durable goods,' he said.

'Other sectors such as property, tourism and cargo throughput will suffer too. I hope this is short term.'

Despite the positive news of China's entry into the World Trade Organisation, the mainland cannot escape unscathed.

Salomon Smith Barney lowered its GDP growth forecasts for China to 7.6 per cent for this year and next, from 7.8 per cent and 8.2 per cent respectively.

'If US consumers scale back their shopping because of lower confidence after the attacks, it will hurt exporters of consumer goods such as China,' Salomon economist Huang Yiping said in his latest research report.

HSBC expected China's real GDP growth would be more severely affected next year, with 7.6 per cent this year and 7.2 per cent next year.

This was because consumption and investment - supported by low interest rates and Beijing's pump-priming policy - probably would contribute less next year, HSBC said.

Foreign investment from the US probably would ease off, it said.

According to Salomon, the US accounts for 20 per cent of China's total exports and provides about 11 per cent of direct foreign investment into China.

Despite slower growth, Salomon and HSBC believed China would remain one of the world's fastest-growing economies.

'China could become even more important for international investors as a safe haven and a defensive play,' Salomon said.

Graphic: fina25gbz