Hong Kong may soon see end of devastating deflation


  • Business
  • Friday, 23 Jul 2004

HONG KONG (AP) - Economists say Hong Kong's deflationary spiral has about run its course, and after almost six tough years of falling prices merchants were hoping Friday that the experts are right. 

Deflation has been slowing dramatically recently, and economists predicted that numbers coming out late Friday would show that prices are finally bottoming out as consumer demand stabilises. 

But some caution that unemployment remains high, many people remain nervous about their prospects and it's uncertain when they will start spending freely again. 

"I can't believe deflation will be over soon,'' said Ng Pak-yan, a seafood shop owner.  

"People are still looking for discounted fish, rather than the fine and tasty ones.'' 

Hong Kong has already endured 67 months of deflation - a sustained drop in prices - following the 1997-98 Asian financial crisis that threw the territory into a harsh recession. 

But the deflation rate - which hit a high of 4 percent in July last year - dropped to 0.9 percent in May.  

The government says prices of imported goods are rising and rents have bottomed out, and some experts say deflation has ended already. 

In a poll of 11 economists by Dow Jones Newswires, expectations for June's consumer price figures to be released later Friday ranged between 0.8 percent deflation and 0.1 percent inflation against the same month last year, averaging out at 0.3 percent deflation. 

"It's over,'' said a general manager at the Hong Kong brokerage Fulbright Securities, Francis Lun, who believes the territory could return to inflation by year's end. 

"In fact, the prices of electricity, food and oil are already surging.'' 

An end to deflation or even the start of mild inflation would, in theory, boost confidence in Hong Kong's economy, but because of the territory's high unemployment rate - 6.9 percent in the three months from April to June - many locals won't be able to enjoy the recovery. 

"What we see here are falling salaries and people worrying about losing their jobs,'' said Wong Wai-king, a housewife and a conservationist. 

"Many are struggling to make ends meet.'' 

During much of the 1990s, Hong Kong was booming and many forgot that prices could fall as well as rise. 

The collapse of the property market in the late 1990s was the hardest blow for many Hong Kongers, leaving thousands stuck with negative equity - meaning that the money they owed on their homes exceeded the market value. 

Those problems are easing, but they're not over. 

"It's meaningless to talk about the end of deflation now,'' said Andrew To, head of research at Tai Fook Securities. 

"Domestic demand in Hong Kong is still very low and ordinary workers won't benefit from any pay rise or bonus soon.'' 

And those who have been beaten down by hard times aren't likely to become optimistic overnight. 

The economic downturn has led to an increase in family problems and even suicides, social workers say. 

But in a display of Hong Kong's traditional entrepreneurialism, many are brimming with hopes that people will start spending again - and they're ready to cash in on the good times. 

"I have taken advantage of falling rents to open 10 bars since 1999,'' said businessman Jackie Chan who owns the company Bar Pacific. 

"I'm going to open up another 40 in the next five years, even if rents go up. It's my dream to operate bars like chain stores.'' - APLatest business news from AP-Wire

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