Hong Kong's economy continued to show strong growth momentum at the start of 2003, after the distinct pick-up in the latter part of 2002.

This was the message from Government Economist KY Tang, announcing Hong Kong's economic situation in the first quarter of 2003.

Incorporating the better-than-expected outturn of a 4.5% GDP growth in the first quarter, the forecast growth rate in real terms of GDP in 2003 has been trimmed down to 1.5%, from 3% in the Budget round.

Government adopts right economic policies

The Chief Executive Tung Chee Hwa said the 4.5% GDP for the first quarter has not reflected the serious impact of SARS on our economy. He expected a less favourable performance for the second and third quarters.

However, he said the economic statistics for the first quarter and the second half of 2002 showed that the Government has been adopting the right and effective economic policies.

He said we have to worker even harder in our core industries - finance, logistics, commerce and industry, and tourism - as well as in our closer integration with the Pearl River Delta. Mr Tung believed results will be achieved when SARS is conquered.

Consumer Price Index dips further

Financial Secretary Antony Leung said the Government has also adjusted its forecast Consumer Price Index from -1.5% to -2.5%.

Mr Tang said while the external sector remained the key growth driver, there were also signs of improvement domestically in the first two months of the year. However, the economic situation worsened abruptly in mid-March with the SARS outbreak, with inbound tourism and local consumer spending being particularly hard hit.

"The negative impact of SARS on consumption is known to have been rather profound in April, and still markedly so in May," Mr Tang said.

"Yet with WHO's travel advisory lifted, consumer sentiment can be expected to improve steadily. Strong promotion by the affected trades complemented with the Government's relaunch [campaign] can render a useful boost. But investment intentions may still be weak before business returns fully to normal."

Spending expected to fall further

For 2003, both consumption and investment spending are forecast to see further appreciable declines, mostly because of SARS, he added.

Mr Leung said the SARS effect on Hong Kong's economy will be one-off and he is confident that tourists will come back as the Government continues to contain the disease.

The number of incoming visitors, having already relapsed into a 10% decline in the second half of March over a year earlier, plunged by 65% in April. The hotel occupancy rate, which is normally over 80%, has been running at around 20%.

Return to growth expected

With the help of the private sector and the Government's relaunch measures, Hong Kong's economy will return to a growth path, he added.

For the first quarter, GDP attained solid growth at 4.5% in real terms over a year earlier, albeit somewhat slower than the 5.1% growth in the fourth quarter of 2002.

On a seasonally adjusted quarter-to-quarter comparison, GDP declined by 0.3% in real terms in the first quarter of 2003, after a 1.7% increase in the fourth quarter of 2002.

East Asia continued to provide the key impetus to growth in Hong Kong's merchandise exports. Total exports of goods surged 19.1% in the first quarter over a year earlier.

Service exports surge

Exports of services attained further double-digit growth, at 12.2%, as exports of transportation services and offshore trade were both strong, and as inbound tourism stayed robust in most of the quarter.

Consumer spending improved at the beginning of the year, but has receded abruptly since mid-March, marking a 2.1% decline in the first quarter of 2003 over a year earlier.

Yet investment spending rose a modest 3.9%, underpinned by a marked rebound in intake of machinery and equipment, which more than offset the further decline in building and construction output. Inventories went up further in the first quarter.

Jobless numbers climb

The labour market slackened in the first quarter, mainly due to the worsening employment situation in the construction sector. The seasonally adjusted unemployment rate rose from 7.2% in the fourth quarter of 2002 to 7.5% in the first quarter of 2003 (and further to 7.8% in the three months ending April, upon the impact from the spread of SARS).

The underemployment rate fell from 3.1% to 2.9% between these two quarters (but went up to 3.2% in the three months ending April, likewise under the SARS impact).

Exports show strong growth

Total exports of goods held up well in April, rising by 10% over a year earlier. Yet the growth pace was lesser than that in the first quarter.