Media

Economic Growth will Slow Down According to HKU APEC Study Center

05 Oct 2005

 

Hong Kong Economic Outlook

The APEC Study Center of the University of Hong Kong (HKU) released its quarterly Hong Kong Macroeconomic Forecast today, announcing an estimation of 6.4% in real GDP growth in the 3rd quarter of 2005 on a year-on-year basis.

This growth estimation is an upward revision of the 5.6% forecast released on July 7, 2005 due to the stronger than expected growth in external trade. In the 4th quarter of 2005, real GDP growth is forecast to moderate to 6.0% when compared with the same period last year.

Professor Y.C. Richard Wong, Director of the APEC Study Center at HKU, remarked, "Despite surging oil prices and tightening of monetary conditions, the expected slowdown in global economic growth has turned out to be mild."

"The expansion of the Hong Kong economy since the 3rd quarter of 2003 is expected to continue, with real GDP estimated to be growing by 6.2% in the second half of this year, representing only a slight drop from the 6.5% growth in the first half. For the year as a whole, real GDP is likely to grow by 6.4%," he added.

"The labour market will continue to improve, with unemployment rate dropping to an estimated average of 5.4% in the current quarter. Rising import prices and rents will pull up consumer prices. Inflation rate is forecast to increase to 1.7% in the current quarter, " said Dr. Alan Siu, Executive Director of the APEC Study Center at HKU.

Forecast Highlights

•Private consumption spending grew by a modest rate of 2.7% in Q2. Consumer sentiment continues to improve, led by the robust growth of the economy since the 03Q3, with real GDP growing continuously for more than 8 quarters. Private consumption expenditure is estimated to grow by 3.3% in Q3 and further pick up to 4.1% in Q4. For the year as a whole, private consumption spending is estimated to grow by 3.6%

•The volume of retail sales in July 2005 registered a broad-based increase of 5.6% when compared with same period last year. Clothing, footwear and allied products, consumer durable goods and other consumer goods grew at 8.2%, 4.4% and 9.6% respectively. The volume of retail sales is forecast to grow by 6.5% in Q3 and 4.4% in Q4 of 2005. For 2005 as a whole, it is expected to rise by 6.3%.

•Total exports grew by 11.1% in Q2, faster than the 9.0% growth in Q1, but is expected to moderate in the second half due to a weaker external environment. It is estimated to be 9.0% in Q3 and forecast to be 8.0% in Q4. For the year as a whole, total exports are projected to grow by 9.2% in 2005.

•After falling by 9.6% and 8.3% in Q1 and Q2 respectively, domestic exports are projected to be on its declining trend, dropping by 3.2% in Q3 and 6.4% in Q4. For the year as a whole, it is forecast to decrease by 6.6% in 2005.

•Re-exports grew by 12.3% in Q2, faster than the 10.2% increase in Q1, but is forecast to grow more slowly in the second half of this year, due to weaker external demand. It is estimated to grow by 9.8% in Q3 and moderate to 9.0% in Q4. For the year as a whole, it is projected to grow by 10.3%.

•Service exports grew by 7.8% in Q2. The number of visitor arrivals increased by 8.7% in the first 7 months of this year, when compared with the same period last year. Inbound tourism is expected to continue to perform well for the rest of this year. Service exports is forecast to expand by 6.8% and 7.0% in Q3 and Q4 of 2005 respectively. The annual growth is estimated to be 7.5% in 2005.

•Imports of goods grew by 7.0% in Q2. Fueled by the revaluation of RMB and surging oil prices, import prices have been rising for six consecutive quarters, thus dampening real import growth. The growth of imports of goods is estimated to be 7.9% in Q3 and 8.8% in the current quarter. The growth is forecast to be 7.0% for 2005.

•Import of services dropped by 0.4% in Q2. The growth in travel related service imports will be dampened by rising oil prices which has made air travel more expensive. Service imports is forecast to grow by 4.5% and 5.0% in Q3 and Q4, respectively. It is estimated to grow by 3.7% in the whole year of 2005.

•The trade balance, as measured by the net exports of goods and services, is estimated to be 13.4% of GDP in Q2. It is forecast to be 17.3% of GDP in Q3 of 2005, and 18.1% of GDP in the current quarter.

•Gross fixed investment rose by 3.5% in Q2 of 2005. The growth is expected to contract by 1.9% in Q3 and 2.5% in Q4 of 2005.

•Investment in land and construction dropped by 6.6% in Q2 of 2005. Due to the lack of commencement of major projects, the investment in land and construction is forecast to drop by 2.7% in Q3 and by 4.6% in Q4 of 2005. The annual decrease of 2005 is estimated to be 3.4%.

•Investment spending in machinery, equipment and computer software surged by 10.1% in Q2 of 2005 due to delivery of several aircrafts. Underpinned by the expectation of continued economic growth, investment spending is expected to hold up in the second half of this year. It is estimated to grow by 4.8% in Q3, 7.6% in Q4 and 5.9% for the year as a whole.

•As predicted, inflation, as measured by the year-on-year percentage change of the Composite CPI, grew by 0.8% in Q2, accelerating from the 0.4% increase in Q1. Started in July, the housing component of the Composite CPI registered the first annual gain since the 1998 Q4. Rising rentals since 2004 Q2 has finally started to be reflected in the index. This trend will continue as old rental contracts expiring in the coming months will have to be renewed at higher rates. The CPI inflation in August edged up to 1.4% from the 1.3% in July. Rising import prices and higher energy prices also contribute to the inflationary pressure. Inflation rate is estimated to be 1.6% in Q3 and forecast to increase to 1.7% in the current quarter.

•The provisional seasonally adjusted unemployment rate stood at 5.7% in the three months average ending in August 2005, unchanged from the previous estimate for the three months ending in July 2005. Even though the unemployment rate is still relatively high compared to the levels in the 90s, around 200,000 additional jobs have been created since the trough in 2003. In tandem with the growing economy, total employment will increase. The unemployment rate is forecast to be 5.6% in Q3 of 2005, and drop slightly to 5.4% in the current quarter, with the number of unemployed dropping by 6,000 by year end.

Concluding Remarks

Surging oil prices is a cause for concern. Oil prices will be likely to remain high. The risk of slower global economic growth next year is now higher. Persistent high oil prices could lead to further monetary tightening in the U.S. Higher interest rates than currently expected will dampen global economic growth.

About Hong Kong Macroeconomic Forecast Project

The Hong Kong Marcroeconomic Forecast is based on research conducted by the APEC Study Center of the HKU's Faculty of Business and Economics. It aims to provide the community with timely informtion 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 HKU APEC Study Center.

The project is sponsored by the HKU Foundation for Educational Development and Research. The Steering Committee is chaired by Dr Chow Yei-Ching, Chairman & Managing Director of Chevalier International Holdings Ltd, with Mr Michael Leung, Executive Chairman of Onwel Group, as Deputy Chairman. Both Dr Chow and Mr Leung are members of the Board of Directors of the HKU Foundation.

The Hong Kong Centre for Economic Research at HKU provides administrative support to the project. Researchers at the APEC Study Center are solely responsible for the accuracy and interpretation of the forecasts. 

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