Hong Kong's financial secretary said yesterday he was optimistic about the outlook for the economy next year but high unemployment remained a challenge.

"I'm prudently optimistic about the future but when it comes to unemployment I do think there are a lot of challenges," Financial Secretary Henry Tang told legislators during a regular briefing to the Legislative Council. A weak US dollar, which makes Hong Kong's exports more competitive because of the territory's currency peg to the dollar, and falling oil prices would help the economy, Tang said.

The territory's unemployment rate of 6.7 percent was still on the high side though, he said. Economic recovery has created 100,000 jobs in the past year, pushing employment to record levels, but it has also encouraged many spouses who had stayed at home during the economic downturn to go out and seek work again, Tang said.

Much of the territory's unemployment is structural as jobs have shifted across the border to the lower cost mainland. The construction sector meanwhile, is still grappling with 15 percent unemployment amid an oversupply of housing and office space.

He said he was confident the economy would this year meet the government's forecast for 7.5 percent growth. The government has yet to forecast growth next year but a recent Reuters poll of analysts estimated growth in gross domestic product would slow to 4.1 per cent in 2005.

In July, the territory finally escaped a near six-year annual deflation cycle and Tang said he expected inflation to remain intact.

"We believe inflation will be on the upside in coming years," Tang said, adding that it would not be serious inflation.

Prices of imports from Europe and other Asian countries are rising as the dollar is falling. Speculation is also swirling that the mainland may next year allow its renminbi currency to appreciate slightly from its linked rate to the US dollar.

However, any such move would not create much inflationary pressure in Hong Kong, the chief government economist, K.C. Kwok, told legislators.

(China Daily December 7, 2004)