Economic Prospects for 2002 and the Medium-Term

44.     I now turn to the economic forecast for 2002 and our medium-term (from 2002 to 2006) prospects.  I believe that the EU and US economies will recover in the foreseeable future and that the Mainland will maintain its high economic growth.  In the light of the more favourable external factors and our sustained efforts to move up the value chain, the outlook for Hong Kong is bright in the medium and long term.

45.     I am forecasting a GDP growth of 1% in real terms for 2002, and real trend growth of 3% over the medium term.  As the excess capacity within the global economy has yet to be digested and local deflationary pressure will remain, I forecast a fall of 1.5% in the GDP deflator for 2002 and 0.4% trend growth over the medium term.

46.     While the medium- and long-term outlook is promising, it will take time for our economy to recover.  Economic restructuring will continue for some time.  In the light of these factors, coupled with the pressure of deflation, I expect that, in the short term, the unemployment rate will increase further.