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%.
INVESTORSOFFSHORE.COM
