1 Update on the Hong Kong Economy for The Task Force on Economic Challenges Government Economist 3 April 2009

2 Global economic situation continued to worsen…

3 US: recession in 2009 likely to be the worst since WWII

4 EU and Japan likewise in dire state

5 Asia’s recession deepened further Exports all plunging in Jan & Feb (Year-on-year % change) Q3 08Q4 08 Jan & Feb 09 China Japan Hong Kong Singapore Korea Taiwan Indonesia * Malaysia * Philippines * Thailand (*) January figures.

6 Guangdong’s processing exports and imports markedly down

7 Export orders rebounding

8 Hong Kong economic situation

9 Latest local developments in 2009 Decline in exports even steeper in January and February Retail sales fell in January and February combined Flat prices stabilised after an extended period of subdued activities Credit conditions eased somewhat in general, but remain tight for sectors hit direct by the shrinking trade flows (e.g. I/E trade and logistics) Unemployment rate risen further; employment on a general downtrend

10 External trade

11 Exports sharply down

12 Indicators of external trade all down (year-on-year rate of change) Q3Q4Jan & Feb Exports2.1%-3.5%-24% # US-7.1%-13.0%-24% # EU2.0%-6.3% -23% # Japan-1.2%-1.0% -16% # Mainland3.9%0.4% -25% # Asia excl. Mainland and Japan2.2%-8.2% -28% # Air cargoes-3.6%-18.6%-24.7% Container throughput7.4%-10.3%-22% # (#) Crude estimates.

13 Domestic sector

14 Private consumption fell in 2008Q4 Investment also deteriorated on dimmer prospects

15 Consumption and investment: Relevant indicators 2008Q32008Q42009 Jan&Feb (year-on-year % change in real terms) Consumption Retail sales volume Restaurant receipts N.A. Visitor arrivals Investment Machinery and equipment N.A. Building and construction N.A. Building consents (8-quarter average)

16 Financial services

17 Activities are all down Loans-4.6%(Jan 09 over Sep 08) –Trade -21.0%(Jan 09 over Sep 08) – Other than trade finance -3.5%(Jan 09 over Sep 08) Stock market turnover-29.2%(Feb 09 over Aug 08) IPO activities-96.1%(Oct 08 – Feb 09, y-o-y) Banking sector receipts-45.5%(Q4 2008, y-o-y) Asset management receipts-44.7%(Q4 2008, y-o-y)

18 Property market

19 Property market held stable over the past 3 months

20 Fewer new private construction projects… but Government’s increased construction to provide some offset Capital Works Expenditure ($ billion) * (*) Excluding injection into WKCD.

21 Labour market

22 Unemployment rate rising markedly across-the-board Dec 08 – Feb 09 (3) Change in unemployment rate over Jun-Aug 08 (%)(% point) Trading and logistics Trading (1) Logistics (2) Tourism and consumption-related services Retail trade Restaurants Hotels Real estate and construction Real estate Construction Financial services Financing Insurance Others (including first time job seekers) Total (seasonally adjusted) Notes:(1)The trading sector includes import/export trades and wholesale trade. (2)The logistics sector includes freight transport, storage, postal and courier services. (3)Provisional figures. Source:General Household Survey, Census and Statistics Department.

23 Total job losses by sector since Jun-Aug 2008 Difference in employment at Dec 2008 – Feb 2009 as compared to Jun-Aug 2008 Trading and logistics Trading (1) Logistics (2) Financial services Financing Insurance 100 Tourism and consumption-related services-500 Retail trade4 300 Restaurants Hotels500 Real estate and construction1 300 Real estate300 Construction Notes:(1)The trading sector includes import/export trades and wholesale trade. (2)The logistics sector includes freight transport, storage, postal and courier services. (3)The figures being listed here are provisional. Source:General Household Survey, Census and Statistics Department.

24 Feedback from SMEs

25 Credit situation easing somewhat since early 2009 (% of SMEs firms reporting tighter than normal credit situation) SMEs by sectorsEnd-NovEnd-DecEnd-JanEnd-Feb20 Mar Wholesale trade Retail trade Import/export trades Restaurants Logistics Travel agents Financing institutions Insurance agents and brokers Real estate and construction Business services All the above sectors

26 No. of SMEs (in business units) No. of persons engaged in SMEs IndustrySep 2008 Dec 2008 QTQ change Sep 2008 Dec 2008 QTQ Change Mining and quarrying; electricity and gas; and construction Manufacturing Wholesale trade Retail trade Import and export trade Restaurants and hotels Transport and storage Communications Financing and insurance Real estate Business services Community, social and personal services Total SMEs: Firm numbers and employment both down

27 Employment in SMEs under heavy downward drag amid economic downturn

outlook

29 Further mark-down by private sector analysts on Hong Kong’s GDP in 2009 Fitch:-1.2%JP Morgan:-3% Standard Chartered:-1.8%Hang Seng Bank:-3% Bank of China:-2%HKU:-3% IMF:-2%Morgan Stanley:-3.8% S&P:-2% to -2.5% Deutsche Bank:-4% Citigroup:-2.2%Credit Suisse:-4% HKUST:-2.2%HSBC:-4.5% Hong Kong Government: -2% to -3% Goldman:-6%

30 End