IMF Boosts Hong Kong Growth Forecast

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

22 April 2002

In its World Economic Outlook Report, released on Thursday, the International Monetary Fund (IMF) upgraded the SAR's economic growth forecast for 2002 - but by only 0.5%.

The half percentage point increase to 1.5% follows a significantly more optimistic forecast for the United States, which the IMF has predicted will grow by 2.3% this year (up 1.6% from its December estimate).

Speaking to the South China Morning Post on Friday, IMF Representative, William Lee, explained the reasons behind the international body's cautious optimism over the SAR's economic future:

'In Hong Kong, we are dependent on the US as an engine of growth and demand for our exports, so unless the US manages to sustain growth throughout the year and continues to import from us, that's where the risks lie for Hong Kong,' he observed.

The IMF report stressed that there was a possibility that the fledgling US recovery would not be sustained in the second half of the year.

'The US story is one of imbalances, where corporate investment hasn't kicked in yet, a lot [of growth] has been led by the housing sector and consumption and a lot of that is based on high demand for credit,' Mr Lee explained. 'What we'd like to see is a balance of income-driven growth from the corporate sector as well.'

The Asian Development Bank (ADB) earlier this month forecast economic growth for Hong Kong this year of around 2.1% this year. Although this figure was more than double government estimates, and is significantly higher than last week's IMF prediction, the bank revealed that it was still low compared to other countries in the region, citing concerns over the size of the jurisdiction's fiscal deficit as a constraining factor.

However, despite its relatively low growth prediction, the IMF has said that it is not especially concerned on this count, and has taken the promise made by the SAR government to cut expenditure into account.

'We would worry if there was no plan in place and the authorities were complacent about this,' Mr Lee told the SCMP 'but [the government has] raised it to the level of top priority to get the level down to zero over the medium term.'

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