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HKU Announced 2013 Q4 HK Macroeconomic Forecast

08 Oct 2013

 

Hong Kong Economic Outlook

The APEC Studies Programme of the Hong Kong Institute of Economics and Business Strategy at the University of Hong Kong (HKU) released its quarterly Hong Kong Macroeconomic Forecast today (Oct 8).  According to its High Frequency Macroeconomic Forecast, real GDP is estimated to increase by 3.6% in 13Q3 when compared with the same period last year.  This estimate is the same as our previous forecast released on July 4, 2013.  In 13Q4, real GDP growth is forecast to accelerate slightly to 3.7% when compared to the same period last year.

Professor Richard Wong Yue-Chim, Professor of Economics at HKU said that, "Given the mild recovery in the US, low interest rate environment and sustained economic growth in China, Hong Kong regained the economic growth impetus in 2013.  Its real GDP is estimated to grow by 3.7% in the second half of this year, picking up from the 3.1% increase in the first half.  For year 2013 as a whole, real GDP is forecast to increase by 3.4%.  The growth in real GDP continues to be driven primarily by domestic demand.  The increase in domestic demand is estimated to account for 3.8 percentage point of the overall increase in real GDP in the current year, while the external demand contributed a negative 0.4%."

"The labour market is projected to remain relatively stable with the unemployment rate projected to be flat at 3.3% in 13Q4, with the number of unemployed workers forecast to drop by 11,000, and the number of employed workers estimated to go up by 24,000.  The headline inflation is forecast to be 4.7% in the second half of this year, up from the 3.9% in the first half.  Stripping out fiscal measures, the underlying inflation rate is estimated to be 4.2% in the second half of 2013", according to Dr. Ka-fu Wong, Principal Lecturer of Economics at HKU.

The forecast details are in Table 1 and Table 2, and the forecasts of selected monthly indicators are in Table 3.  All growth rates reported are on a year-on-year basis.

Forecast Highlights

• Spurred by buoyancy in the job markets, low interest rate environment and high consumer sentiment, private consumption spending is projected to continue to grow in the current quarter at 4.1%, which is a slight improvement of the 4.0% increase in the third quarter.  For the year as a whole, private consumption spending is forecast to grow by 4.6%.
• The volume of retail sales grew by 7.2% in August 2013, slightly lower than the 8.7% growth in July.  Given strong domestic demand and the influx of Mainland visitors, the growth momentum in retail sales is projected to continue, but at a slower rate in the current quarter.  The growth in the volume of retail sales is estimated to be 8.0% in 13Q3 and a moderate 6.7% in 13Q4.  For the year of 2013 as a whole, it is projected to grow by 10.8%.
• Total exports of goods increased by 6.2% in 13Q2, lower than the 8.8% growth in 13Q1.  In August 2013, the exports of goods from Hong Kong dropped by 1.3% in nominal terms.  Given the uncertainty in external demand, the growth of exports of goods is estimated to be 6.1% in the third quarter of 2013, and the growth rate is forecast to moderate further to 5.4% in the current quarter, reflecting weaker demand from the developed economies.  For year 2013 as a whole, total exports of goods is forecast to increase by 6.5%.
• Imports of goods increased by 7.6% in 13Q2, decelerating from the 9.6% growth in 13Q1.  In tandem with the slowdown in exports of goods, imports of goods dropped by 0.2% in August 2013 in nominal terms.  The growth of imports of goods is forecast to moderate to 7.2% in 13Q3 and the growth further decelerates to 6.2% in 13Q4.  For the year as a whole, it is projected to grow by 7.6%.
• Service exports grew by 8.1% in 13Q2, accelerating from the 5.3% growth in 13Q1.  Vibrant inbound tourism led to a pickup in the exports of the travel related services.  The visitor arrivals rose by 9.4% in August 2013.  The influx of Mainland visitors was the main contributor to the growth of visitor arrivals.  The increase in service exports is forecast to be 7.4% in 13Q3 and a moderate 6.7% in 13Q4.  The annual growth is estimated to be 6.9%.
• Service imports dropped by 1.4% in 13Q2, reverted from the 0.5% growth in 13Q1.  Service imports is forecast to decrease by 0.3% in 13Q3.  A rebound to 1.7% growth is expected in 13Q4.  It is estimated to grow by 0.1% in the whole year of 2013.
• Gross fixed capital formation grew by 6.9% in 13Q2, reverting from the 3.3% drop in 13Q1.  Due to lack of commencement of infrastructural projects, slowdown in investment spending is expected.  The gross fixed capital formation is projected to grow by 0.9% in 13Q3 and to revert to a 1.4% drop in 13Q4.  The annual growth is estimated to be 0.8%.
• Investment in land and construction shrank by 7.9% in 13Q2, worsen from the 2.6% drop in 13Q1.  In conjunct with lack of new infrastructural projects and slowdown in private construction, investment in land and construction is expected to remain subdued for the rest of this year, with the decline projected to be 6.2% and 7.9% in 13Q3 and in the current quarter respectively.  For the year of 2013 as a whole, it is estimated to decrease by 6.2%.
• Investment spending in machinery, equipment and computer software surged by 19.4% in 13Q2.  Underpinned by the continued economic growth, investment in machinery, equipment and computer software is projected to increase, at a relatively moderate rate, by 6.4% in 13Q3 and 4.5% in 13Q4 when compared with the same period last year.  It is projected to increase by 6.9% for the year of 2013 as a whole.

• The general price level, as measured by the Composite CPI, rose by 4.5% in August 2013.  The headline consumer inflation rate is estimated to be 5.3% in 13Q3 and after stripping out the effect of the public housing waiver implemented last year, the rate would only be 4.3% in the third quarter.  Relative stable in food prices and rentals will cause the price level to stand at around 4.0% in the near term.  The consumer inflation rate is forecast to be 4.1% in the current quarter.  For year 2013 as a whole, it is estimated to be 4.3%, only a slight increase as compared to the 4.1% inflation rate in 2012.

• The provisional seasonally adjusted unemployment rate stood at 3.3% in the 3 months ending in August 2013, reflecting tight labour market.  With steady rise in real wage and stable job market, the number of jobs is estimated to increase by 24,000 and the number of unemployed workers to drop by 11,000 in 13Q4 comparing with previous quarter.  The unemployment rate is forecast to remain at 3.3% in both 13Q3 and 13Q4.  For the year of 2013 as a whole, the unemployment rate is estimated to average out to be 3.3%.

Concluding Remarks

We revised our real GDP growth forecast for the whole year of 2013 to 3.4%. This growth is driven mainly by the mild improvement of the external sector and the robust internal demand.  This forecast growth rate is near the lower bound of our forecast we set out at the beginning of the year, and this is mainly due to the weaker-than-expected recovery of the external sector.

Despite various uncertainties (such as the temporary shutdown of the US government), the US economy has showed moderate recovery, the Eurozone has bottomed out, and the Mainland economy has continued to grow at a reasonable rate in the first three quarters. We expect the improvement of the external sector and the robust internal demand will continue to drive our growth in the near future.

About Hong Kong Macroeconomic Forecast Project
The Hong Kong Macroeconomic Forecast is based on research conducted by the APEC Studies Programme of the Hong Kong Institute of Economics and Business Strategy at HKU in the Faculty of Business and Economics.  It aims to provide the community with timely information useful for tracking the short-term fluctuations of the economy.  The current quarter marco forecasts have been released on a quarterly basis since 1999.

The high frequency forecasting system was originally developed in collaboration with Professor Lawrence Klein of the University of Pennsylvania in 1999-2000.  Since then, the system has been maintained and further refined by the APEC Study Center which is now a research programme area of the Hong Kong Institution of Economics and Business Strategy.

The project is sponsored by the Faculty of Business and Economics.  The Hong Kong Centre for Economic Research at HKU provides administrative support to the project.  Researchers at the Hong Kong Institution of Economics and Business Strategy are solely responsible for the accuracy and interpretation of the forecasts. 

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