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ABN Amro cuts HK '03 growth forecast on pneumonia fears

HONG KONG: Investment house ABN Amro has reduced its 2003 forecast for Hong Kong's economic growth by half a percentage point due to the impact of a killer pneumonia virus on the territory's business environment.

ABN Amro said in a report dated March 28 that it now expects Hong Kong's gross domestic product to grow by 3.5 percent this year, assuming the disease can be brought under control within about a month.

"If the spread of the disease can not be brought under control in the next month or so, the impact on the Hong Kong economy will be huge," ABN Amro economist Eddie Wong said in the report.

"If the problem drags on, it will start to have an exponential effect on the economy," he said.

Investment house JP Morgan said it estimates that Hong Kong "could lose 0.2 percent to 0.5 percent of GDP every month from the drop in tourism and private investment".

The virus which causes severe acute respiratory syndrome (SARS) has killed 59 people worldwide, including 13 in Hong Kong, and infected more than 1,600 others as air travellers spread it around the world.

Hong Kong health officials on Monday ordered residents of an entire apartment building to be quarantined for 10 days after a sharp rise in cases of the deadly virus on the Amoy Gardens housing estate.

The move came after the number of infections in the territory leapt by 60 to 530 on Sunday, with 36 of the new cases coming from Amoy Gardens in urban Kowloon.

Hong Kong's dominant carrier Cathay Pacific Airways Ltd plans to cut flights in the next few days following a decline in passenger traffic caused by the Iraq war and the virus outbreak.

ABN's Wong said exports of travel services accounted for about 6.1 percent of Hong Kong's gross domestic product.

Hong Kong has been struggling with near record unemployment, record bankruptcies and more than four years of deflation.

Record numbers of tourist arrivals and strong growth in exports have been among the few bright spots in the economic picture in recent months.

Analysts fear that the impact on tourism could effect overall economic growth, making it harder for the government to bridge a budget deficit amounting to 5.5 percent of GDP.

The government has said that it is assuming an average annual growth rate of three percent over the next four years to help balance its books.

"If business travellers are reluctant to come to Hong Kong, it will pose a big problem. The longer business travellers are reluctant to travel to the territory, the more likely that foreign trade will be affected, as will Hong Kong's image as an international business centre," Wong said.-Reuters