HKU Bulletin May 2009 (Vol. 10 No. 2)

11 We take a look at how Hong Kong – and the University – is weathering the financial tsunami. D r Alan Siu has become a familiar face on our screens and in our newspapers in recent months. As Executive Director of the Hong Kong Institute of Economics and Business Strategy of HKU, his opinions are sought by news networks hoping to make sense of the world’s broken economy and analyse its impact on Hong Kong and the region. What is clear, Siu stresses, speaking from his office in the Faculty of Business and Economics, is that this is no garden variety recession. “It’s going to be a little bit more protracted. It might not be as bad as the Great Depression but the economy is not going to turn around in ten months time. We are already one year into the recession and we may have another year to go.” And Hong Kong’s small economy has left it nowhere to hide. “Exports to the EU and North America are way down, and the situation in the US will get worse before it gets better. The deceleration is still nowhere in sight and our export machinery will stall. It was very bad in January and February, but things will pick up a bit because the US and Europe need to replenish their inventory, but the total demand for goods will be much smaller.” However, in the short term, life – and consumption – will go on, just not in the way that we know it. “Shoppers will shift away from expensive goods to buying cheaper, functional things. So you see this substitution effect where MacDonald’s is doing well but Starbucks is hurting. “Likewise, there will be a substitution of high end goods for low end ones. For example, the Italian garment industry will suffer, but the low end daily wear garment maker in the Pearl River Delta, controlled by Hong Kong manufacturers, will hold off. “And in this process we will see the survival of the fittest. It will be brutal – the weaker firms will go under, and the stronger firms will be able to consolidate and pick up the assets of the weaker competitors and enlarge their activities. This is typically what happens in a downturn.” In the longish term, says Siu, the export machinery will slow down a gear or two because Americans are not as wealthy as they previously thought. But it’s not all doom and gloom COVER STORY Tough Times Ahead 10 Professor Richard Wong Yue Chim (left) and Dr Alan Siu (right) announced the quarterly Hong Kong Macroeconomic Forecast in April, saying Hong Kong's real GDP was forecast to shrink by 5.1% on a year-on-year basis in the current quarter. Unemployment was also forecast to increase to 6.0%.