B. Concerted Efforts to Meet the Challenges

Facing up to Adversity

4. The economic situation we are facing is severe and unprecedented in decades. First, despite the recent signs of economic recovery, deflation over the past 50 months has accumulated to 13%, and there is no indication that it will disappear in the short term. Confidence in local investment and consumption has suffered. For some, incomes have continued to drop. Second, people's wealth has shrunk with declining asset values, with some facing the hardship of negative equity. These distressing consequences have become more obvious in recent years. Third, economic contraction and restructuring have led to changes in the employment structure and resulted in increasing unemployment, a prime concern of the community. Despite a slight improvement in recent months, unemployment remains far too high. Lastly, the substantial reduction in Government revenue and rising public expenditure have resulted in increasing fiscal deficits in the past few years. As a result, our fiscal reserves have been sharply reduced. This is beginning to affect our credit ratings. If not dealt with properly, the stability of our financial system could be jeopardised.