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Asia Business: The Week Ahead - 2003-10-20

A think tank says Hong Kong's economy has likely pulled out of it economic slump brought on by the outbreak of Severe Acute Respiratory Syndrome and Australia's main carrier, Qantas Airways, plans to start a new domestic airline to compete with Virgin Blue.

The University of Hong Kong's Asia Pacific Economic Cooperation (APEC) center says that the territory's third quarter performance shows Hong Kong has probably pulled out of its SARS-induced economic downturn.

The fear of Severe Acute Respiratory Syndrome and international travel advisories warning visitors to avoid the city damaged Hong Kong's tourism industry in March, April and May.

In the aftermath of the SARS crisis, the APEC study center predicted GDP would fall by point five percent to one point five for 2003. But the center has since revised that growth forecast. It now predicts that Hong Kong's economy will expand by two point two percent.

Michael Kurtz, is an Asia analyst with Bear Stearns investment bank. He says Hong Kong's currency, which is fixed to the U.S. dollar (at 7.8) is benefiting from the greenback's weakness making services and prices in the city more affordable than Hong Kong's regional competitors whose currencies have strengthened.

"Remember that Hong Kong by virtue of the dollar peg benefits as the U.S. dollar weakens, as indeed has been the case over the past two years," says Mr. Kurtz. "We think the weakness in the U.S. dollar is finally beginning to transmit through the currency peg into a somewhat less deflationary environment here. And that reduction of deflation pressure is certainly a positive for real asset values including property in Hong Kong."

Elsewhere is Asia, Pakistan will pay over $1 billion of debt on loans ahead of schedule to the World Bank and Asian Development Bank during the current fiscal year.

The announcement marks Pakistan's new efforts at debt management aimed at freeing up money to tackle such social problems as poverty.

Marshuk Ali Shah, the director for the Asian Development Bank's Pakistan branch, reacted positively to the news. "We are quite pleased that the government is able to take action and it is quite encouraging to see that they are using the reserves in that context - but of course we also want to see that they continue to meet their commitment for social expenditure," he says.

In the past, Pakistan spent much of its foreign exchange earnings on servicing foreign loans. Reducing the debt cuts the amount it has to spend on interest payments.

Australian carrier, Qantas Airways, says it will launch a low-cost domestic airline in 2004. Aviation analysts say the move is aimed at winning back passengers from discount carrier, Virgin Blue, which was launched by British tycoon Richard Branson three years ago. In its three years of operation, Virgin Blue has captured about thirty percent of the Australia's domestic market.

Qantas Airways says it will also slash its operating costs to remain competitive.