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Joshua Eisenman

The government has cut its forecast for economic growth in Hong Kong by half because of the devastating impact of the Sars outbreak.

Hong Kong's gross domestic product, which had been expected to grow 3 per cent  this year, faster than last year's 2.3 per cent, is now likely to expand by just 1.5 per cent, government economist Tang Kwong-yiu said yesterday.

The forecast suggested that the beginning of an economic recovery had been shattered by Sars, especially its impact on the tourism and retail sectors.

'The Sars outbreak has created a severe blow to the local economy' in the second quarter, Mr Tang said. 'On the whole, we expect the Sars outbreak will drag down GDP by 1.8 percentage points', although the government's relief measures would cushion that impact by around 0.2 percentage points, he added.

The government also released first-quarter GDP figures yesterday. They showed that the Hong Kong economy grew 4.5 per cent in the first three months of the year compared with the same period in 2002, fuelled by booming exports of goods and services and tourism.

That follows a revised 5.1 per cent increase in the final quarter of 2002.

On a seasonally adjusted quarter-to-quarter basis, which gives a better idea of where the economy is heading, the news was not as good: GDP shrank 0.3 per cent in the January-March period, compared with 1.7 per cent growth in the final quarter of 2002.

Financial Secretary Antony Leung Kam-chung said: 'The economy was actually doing fairly well until we were hit by Sars [which] affected tourism and local consumption quite a bit.'

The revised growth forecast probably means the government will overshoot its deficit target of $67.9 billion this year and perhaps miss its long term goal of balancing the books in three years.

But Mr Leung said he was still confident of erasing the deficit by 2006-07 despite the GDP target  revision.



Virus impact halves HK growth forecast to 1.5pc