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Andrea Ricci
Hong Kong, Nov 25: Hong Kong's economy has gone from bad to very bad, as third quarter growth figures due later this week will show, economists said on Wednesday.
Third quarter gross domestic product will be at least 5.5 per cent down on a year earlier, and maybe 7 per cent, they said.
"I think (annual growth) will be something around negative 6-7 per cent, judging from the performance in external trade," said Shamus Mok, chief economist at Bank of East Asia.
"Actually, the whole performance for the quarter was terrible."
The government on Friday will release its preliminary estimate for third quarter gross domestic product and its final update for GDP and inflation figures for 1998.
The same woes that plagued Hong Kong in the first half of the year continued to batter the economy July through September, economists said.
With unemployment rising, Hong Kong people were buying less of everything, from vegetables to motor vehicles. Foreign tourists, a pillar of the territory's retail industry, spenttheir summer holidays elsewhere.
Throw in the effects of a less-than-smooth opening of the territory's new airport in July, and it all adds up to huge subtraction from GDP, economists said.
"There is not one positive factor we can point to in the third quarter," said George Leung, economic adviser to Hongkong and Shanghai Banking Corp. "We expect around a 7 per cent (year-on-year) contraction."
The chaotic opening of Hong Kong's new airport in July would snip 1-2 percentage points from GDP growth, Leung said.
Air cargo traffic was severely crippled when the main freight handler, Hong Kong Air Cargo Terminals Ltd, nearly froze due to computer problems. Carriers diverted their goods to safer ports and Hong Kong lost millions.
Bank of East Asia's Mok said third quarter exports slumped an annual 10 per cent after a 3 per cent decline in the year to the second quarter, hurt by the airport debacle and by diminished import demand from Hong Kong's major trade partners.
Financial secretary Donald Tsangsaid on Tuesday there had been conflicting signals on the economy recently, with asset markets looking better but the real economy still suffering.
He said Hong Kong was likely to show "rather poor figures which reflect the current performance in relation to last year's performance."
Economic activity in the third quarter of 1997 showed 6 per cent growth on a year earlier, but the annual rise dropped to 2.7 per cent in the fourth quarter as Asia's financial crisis began to bite.
Then growth turned negative as GDP fell 2.7 per cent during the year to the first quarter of 1998. The second quarter showed a 5.2 per cent annual contraction.
In August, the government said it expected the economy for all of 1998 to be 4 per cent smaller than last year's, while its broadest measure of inflation would show 1998 consumer prices up 3.2 per cent.
Morgan Stanley Dean Witter economist Andy Xie said he expected third quarter GDP to sink an annual 5.5 per cent.
"This is worse than the second quarter, but in factit is a bit misleading, because if you look at the quarter-on-quarter decline taking account of the seasonal factors, it will probably be a negative 2 per cent," he said.
If the third quarter did contract 5.5 per cent year-on-year, the full year would register a decline of 4.5 per cent, Xie said.
Analysts said fourth quarter GDP was also likely to show a fall, but by a more modest 1-3 per cent due to base effects.
"By the fourth quarter, we should see a smaller contraction, but that doesn't signify any improvement," said Leung. Full-year GDP would be down 4.5 per cent, he forecast.
In 1999, most economists see GDP slipping further.
Mok said he expected the economy to hit a floor late next year.
"The economy is likely to bottom in the third or even the fourth quarter. But that just means it will stop sliding, it doesn't mean there will be a significant rebound," he said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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