Hong Kong Said to Be Headed for Recession; Plan Unveiled to Stem `Devastating' Slide
Conceding that the Asian economic crisis has had a more severe impact here than first expected, Hong Kong's leaders today said the territory was heading into a recession, and they unveiled a stimulus package aimed at reviving the economy and stemming a huge downward slide in property prices.</br></br>Chief Executive Tung Chee-hwa, who announced the stimulus package in a television address to the territory's 7 million residents, said the regional economic meltdown that began a year ago has proven "more devastating than anything we had known before." "The effects of the turmoil are more serious and far-reaching than we have anticipated," Tung said. He cited high interest rates, a debilitating credit crunch, the highest unemployment rate in 15 years, collapsing stock and property markets and a tourist industry he said was "shrinking."</br></br>"All Hong Kong assets have been devalued and shrunk to a large extent within a few months," Tung said in his most somber assessment yet of the territory's economic straits. "Every sign points to the fact that negative economic growth will likely continue in the second quarter. The unemployment rate will probably continue to rise, and the economic situation for the second half of the year is hardly optimistic." Tung's bleak analysis, and the announcement of the stimulus package, was yet another sign of the depth and severity of the regionwide meltdown. Once touted as a "miracle" model of growth and development, East Asia has in the course of just 12 months come to be identified as a region with millions of new unemployed people, bankrupt banks, piles of bad debt and a fraying social fabric.</br></br>Hong Kong was once thought to be an island of financial stability amid the regional turmoil. Its currency is firmly pegged to the U.S. dollar, so the territory avoided the round of devaluations that swept through Asia last year. Its banks are generally considered healthier than elsewhere. And its now-departed British colonialists left behind an effective legal system and a professional civil service that have largely spared Hong Kong from the problems of corruption and nepotism that are common across the region.</br></br>Today, however, Tung conceded that some of the current problems "can also be attributed to the internal factors in our own economy." He said the spiraling land prices, high wages and high inflation of recent years had created a "bubble economy."