Financial Secretary Predicts Hong Kong Rebound Next Year

by Mary Swire, Tax-News.com, Hong Kong

28 August 2001

After the US interest rate reduction last week, Hong Kong Financial Secretary Antony Leung Kam-chung, said that lower interest rates would have only a limited impact in Hong Kong and warned of higher unemployment in the territory and a slowdown in the economy as it continues to react to the US slowdown.

Mr Leung forecast a rebound in the economy next year, but said that in the meantime companies were likely to continue cutting jobs: 'They [businesses] depend on what is known as 'slimming',' he told reporters. 'Major companies have to lay off staff and reduce their means of production before they can restore a balance. Interest rate cuts will help in the short term. But rate cuts alone are insufficient.'

The Financial Secretary said that during the boom of the past 10 years many companies had spent too much increasing production, and substantial cost-cutting might be necessary. 'They implement these gestures this year and their profits next year may improve,' he said. 'By that time, the effect of the rate cuts should also materialise. I hope there will be some more obvious signs next year that the economy is improving.'

Mr Tsang said that Hong Kong had always emerged stronger from previous downturns: 'Each and every time we are faced with a crisis, this community has been able to overcome that crisis, and has been able to come out stronger than before. And I do not see why on this occasion we cannot do the same,' he said.

In response to questions from journalists about possible measures to stimulate the economy, Mr Leung was non-committal. But with unemployment high and rising, there is speculation that Chief Executive Tung Chee-hwa will announce a relief package as part of his October Policy Address.

Local banks cut prime lending rates to 6.5% and headline mortgage rates to 4%, the lowest ever, but local analysts were doubtful that it would be enough to perk up the property market.

Opposition politicians were quick to accuse the government of incompetence (see next story) and said that the executive was underestimating the gravity of the situation. But unlike its regional competitors such as Taiwan and Singapore, Hong Kong is not heavily dependent on supplying the bombed-out TMT sector. A poll by Reuters of local economists earlier last week found they were predicting Hong Kong's GDP would grow on average by 1.6 per cent in the second quarter. The economy grew 10% in 2000, but estimates for this year have been around 3% to 4%.

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