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Hong Kong Economy Surges On Consumer-Driven Recovery

by Mary Swire,, Hong Kong

02 December 2003

Hong Kong’s economy surged in the third quarter according to the latest economic data as consumer spending, tourism and exports combined to boosted the city’s Gross Domestic Product by a staggering 6.4% compared with the second quarter.

"For eight quarters, Hong Kong has flown on one engine: trade. This report shows private consumption beginning to accelerate, which is the key to sustainable growth at this pace," The Wall Street Journal quoted Ben Simpfendorfer, an economist with New York investment bank J.P. Morgan & Co, as saying. He also believes it marks the beginings of a more sustainable recovery. "This is more than a blip," said Simpfendorfer.

The news is a marked contrast to the economic gloom that descended in the midst of the SARS (Severe Acute Respiratory Syndrome) outbreak earlier in the year, which curtailed consumer spending and tourist income and sent the economy into what looked like an uncontrollable tail spin.

However, whilst the world’s markets have been surprised by the latest data, the economy remains in the grip of a long deflationary cycle. The government estimates prices will fall a further 2.7% this year, and unemployment remains at near record levels, standing at 8.3% in the third quarter.

"I expect it will take another 12 to 18 months to get out of deflation," Hong Kong’s Financial Secretary Henry Tang predicts. "Economic sentiment is improving, but the unemployment issue remains a challenge."

The government is also facing another economic headache after announcing last Saturday that the budget has widened to HK$81.1 billion (US$10.44 billion) month-on-month compared to HK$74.3 billion in the first seven months of 2003. It anticipates a record deficit of HK$78 billion by the end of the year.

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