External Economic Environment

7.        The major economies of the world, including the United States (US), the European Union (EU) and Japan, are all experiencing economic slowdown.  It is the first time since the 1970s that a synchronized global economic downturn has occurred.  The US economy was already showing signs of slowing down by early 2001 and has worsened following the events of September 11.  The EU economy, though slightly better than that of the US, remains sluggish.  Japan has been mired in economic recession for ten successive years.  Under such conditions, Hong Kong's economy is inevitably affected.  Fortunately, the economy of the Mainland of China, the brightest spot in the global economy, has supported ours in this time of economic difficulty.

8.        Initial signs are that economic conditions in the US are improving.  However, the US and other major economies have accumulated massive excess capacity, which can scarcely all be absorbed over a period of a few quarters.  The global economy, in my view, will experience low inflation and low growth for some time to come.