As an external economy, Hong Kong will be inevitably affected by a global recession, according to Paul Donovan, a global economist at UBS Global Economics.

Therefore, he said, the government has to work with other economies to stabilize the global financial market.

"A global recession is inevitable," Donovan said. "And nothing can be done to ease the sharp slowdown in 2009."

According to UBS's forecast, expected percentage growth this year will be 1.4 in the US, 1.1 in Europe, 7.3 in Asia and 3.1 globally. Next year, those numbers are pegged to decrease to 0.3 percent in the US, 0.3 in Europe, 6.1 in Asia and 2.2 globally. That, UBS says, indicates a global recession will set in next year.

Asked what the Hong Kong government can do to help, Donovan said: "It has to do what is required to stabilize the global financial market in a concerted effort with the rest of the world".

"I expect recovery will see light in two years," he said, expecting deflation to begin in six to 12 months. "I don't think it will take place in the US or in the UK, but it remains the biggest threat."

Donovan said that Asia has to continue to fund the US market, and he expects Asian currencies to rise moderately against the US dollar when the market stabilizes.

The Hong Kong stock market is also expected to rebound 20 to 30 percent from last week. However, it would be short-lived.

He expects more interest rate cuts this year for banks and borrowers to repay their debts and improve their balance sheets.

"To revive confidence in the market, two things have to be achieved - banks' balance sheets have to be repaired, and borrowers' balance sheets have to be repaired - before the market trend can return to normal," he said. "The rate cuts have to be done quickly as well."

Donovan also urged the need for details of bailout plans to be released, saying a delay might lead the world into a severe depression. Correct policies may shorten the length of the global recession and cause less damage to the economy.

"The bailout plan was made a month ago, but we want to see the details and actual actions the governments will take to tackle the crisis," Donovan said.

"If the policy makers can't respond quickly enough, we may fall into a situation like the Great Depression in the 1930s."

(HK Edition 10/14/2008 page2)