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Friday, June 06, 2003

Deflation And Sars in Hong Kong

MS's Denise Yam with the deflation story Hong Kong Style:

Deflation is absorbing a meaningful portion of the shock from the SARS crisis. The Hong Kong economy still expanded 4.5% YoY in real terms in 1Q03, although nominal income slipped 0.4%. SARS has inflicted a severe blow on the economy, as visitor arrivals plunged 65% YoY in April. We now see nominal GDP contracting by 2.5% in 2003, revised substantially downwards from 0.1% growth previously. Nevertheless, extreme flexibility in Hong Kong’s price level in response to shocks means that real growth may not decelerate in 2003 by as much as the market expects. We have trimmed our real GDP growth forecast only marginally to 1.8% from 2.1%, as we expect sufficient deflation in consumer goods, investment assets and service exports to absorb a portion of the shock from SARS.
Source: Morgan Stanley Global Economic Forum

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