The war in Iraq - and now more recently atypical pneumonia - will have an impact on Hong Kong's economic performance this year. But the effects are unlikely to be structural.
At a time when everyone is putting out revised GDP growth forecasts for this year, on account of the war in Iraq and atypical pneumonia, we must be aware also that the economic "shocks" arising from these events are likely to be temporary and, hopefully, short-lived. Although it is still too early to develop any authoritative understanding of the long-term implications of these two events, I think that the economic ones should not be of a structural nature that require changes to structural policies.
The effects of the war in Iraq on Hong Kong are obviously indirect ones that work through temporary shifts in demand in the economies of our trading partners and volatility in major financial markets. We can cope with that, although we would prefer not to have to do so at a time when we are busy with structural adjustments: we know that, perhaps even before the dust is settled, given the efficiency of the market, demand will return. There is one aspect that is arguably of a structural nature, and this concerns the implications of the war on the oil market, in terms of the control over supply and therefore the longer-term trend in oil prices. It is conceivable that oil prices may in future exhibit a more counter-cyclical behaviour, to the benefit of a large part of the world economy, which is no bad thing, from this narrow point of view. Interestingly, along with intensifying globalisation and therefore greater interdependence between different countries, it is possible that the quest for greater influence on the supply and price of strategic commodities may generally intensify. Regrettably, I fear, this may involve more geo-political conflicts. But I hope that they will not be of a military nature. In any case, there is nothing that we in Hong Kong can do about this, other than to take account of this possibility in planning our affairs as we continue to cope with, and benefit from, globalisation.
Incidentally, the quest for greater influence has already been quite evident in respect of the rules of the game that govern financial globalisation. The situation can best be described by what a respected individual in international finance had reportedly said: "if you wish to play major league baseball, you'd better get used to the pitching there." Although until now I still feel uneasy about that analogy, I have found it difficult to argue against it. Yes, no one can force you to play the game if you do not want to, implying that if you cannot cope with the potency of international finance, do not liberalise your financial markets and attempt to benefit from the internationalisation of domestic financial intermediation. But then the ironic thing is that baseball is not much of a global sport. Perhaps a better example is soccer. But then to say that if you cannot bend it like Beckham you should not play in the World Cup, or worse still not play soccer at all, is perhaps a little hegemonic. Anyway, herein lies the dilemma faced by many emerging markets, big or small.
Back to more domestic affairs. The economic effects of the outbreak of atypical pneumonia in Hong Kong may be serious enough to necessitate the downward adjustment of economic forecasts and the introduction of relief measures by the Government. However, they are not of a structural nature. Consequently, there does not seem to be a need for any fundamental modification to basic policies designed to bring about structural adjustments that are now so clearly critical to the long-term stability and prosperity of Hong Kong. As the war in Iraq and uncertainties surrounding its ramifications continue, and as our community unites to fight the domestic war against atypical pneumonia, there will be a resurgence of research articles on Hong Kong's fiscal and monetary policies. There are also the important opinions of the rating agencies. I am confident, nevertheless, that no one would seriously suggest a devaluation of our currency as a cure for atypical pneumonia.
Joseph Yam
10 April 2003
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