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The Week that was in Asia Business - 2002-11-25

South Korea's economy is experiencing fairly strong growth from a credit-driven consumer-spending boom. Government figures in Hong Kong confirm four years of price deflation. South Korea's gross domestic product posted a 5.8 percent growth in the third quarter compared with a year ago. But recent surveys of business leaders show many fear the growth cannot continue. One shop keeper, like many Koreans, worries these days that the economy could falter and succumb to the global downturn if the United States goes to war in Iraq. Right now, he says, property prices are inflated and the bubble could burst early next year. His concerns are important because consumer sentiment and spending is driving growth in South Korea this year. The other developed economies in Asia, Taiwan, Japan, and Hong Kong, are not seeing the same growth.

In Hong Kong, the government reported that the consumer price index dropped for the 48th consecutive month, marking four years of price deflation. Prices in Hong Kong have fallen by about twelve percent since the deflationary trend started. The price declines last month were narrower, however, than in previous months. Utilities and rental costs, which make up about a third of the composite consumer price index, saw the largest fall.

Clothing and footwear prices increased slightly, but economists are not interpreting this as a return of consumer confidence. Instead, most analysts say Hong Kong's retailers will continue to see profits squeezed.

In aviation news, Qantas Airways will buy as much as 22 percent of Air New Zealand. The $277 million investment will create an alliance that allows the rival carriers to cut costs and consolidate routes.

The plan may meet opposition from Virgin Blue, which has about 18 percent of the Australian market. A Virgin Blue spokesman says the deal is not in the best interest of consumers and violates antitrust regulations in both countries.