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CHAMBER REVISES SAR GDP FORECAST to 2.8%
Weaker than expected growth in the first quarter of 2001 prompts re-assessment of the economic outlook

The Hong Kong General Chamber of Commerce (HKGCC) has lowered its forecast growth rate for the local economy to 2.8 per cent for the current year from the original 4.8 per cent predicted at its annual Business Summit in December last year.

HKGCC Chairman Mr. Christopher Cheng said: "This is slightly lower than the Hong Kong SAR Government's full-year forecast of 3 per cent (down from 4 per cent) issued last Friday, but takes into account several recent announcements that suggest the risks to growth are still very much present."

"These include the revision to the US first quarter growth announced on Friday evening, slower growth in the East Asian region, including intra-regional trade, and the weaknesses also evident in the European economies and Japan." Mr Cheng added.

HKGCC's revised forecast also reflects the further deterioration in the SAR's external trade figures in April, also issued on Friday, which showed both exports and imports of goods down for the month, and the trade deficit widening from last year.

This is not a positive sign for the immediate economic growth outlook, with most of the East Asian region now being affected by slower world trade growth.

As a result, the Chamber expects the current second quarter of the year and the imminent third quarter to show only modest overall economic growth, with some improvement expected in the final three months of the year.

This pattern of economic activity should produce an average real increase in Gross Domestic Product for the year of 2.8 per cent. The Chamber's forecast for consumer price inflation also has been lowered to zero from a positive 1 per cent.

"We are disappointed in having to lower our forecast growth rate for the year and are concerned about the impact that the slower growth in the SAR, in the region and globally will have on Hong Kong," Mr Cheng continued.

"Unfortunately, the Hong Kong SAR cannot escape the effects of the global economic slowdown in the short term."

"We do, however, have two important factors in our favour," he said. "The first of these is the continued good economic growth on the Mainland and the second is the lowering of interest rates that has occurred so far this year."

"During my visit to the Mainland last week as a member of the Government's mission to the Western regions and Beijing, I was impressed with the economic expansion underway throughout the country and the optimism in the West. This good growth nationwide should help underpin Hong Kong's own outlook in the short term, while the developmental prospects in the longer term will provide tremendous opportunities for the SAR in the future." Mr Cheng added.

The Chamber feels that as for the cuts in local interest rates so far this year, they are taking time to have an impact on growth, but will ultimately be beneficial to the local economy, especially with some further reductions expected in the coming months.

In the meantime, the Chamber urges the local business community to take a cautious approach in the near term, but to prepare for an improvement in the SAR's economic performance towards the end of this year or in early 2002.

HKGCC Chief Economist Mr. Ian Perkin added that: "The deterioration in levels of economic activity in the US, globally and regionally in the early months of this year clearly indicated our December 2000 forecast for this year was on the high side, but we held our forecast in the belief that interest rate cuts would do their job."

"But with the SAR's first quarter growth of 2.5 per cent coming in well below our forecast for the quarter of 3.2 per cent growth, we had no alternative but to adjust our expectations for full year growth downwards." Mr. Perkin said.

For further information, contact Dr. Eden Woon, Director, at 2823-1211.