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HKU Predicts a Moderate Growth for Hong Kong Economy

04 Jan 2006

 

Hong Kong Economic Outlook

The APEC Study Center of the University of Hong Kong (HKU) today (January 4) released its quarterly Hong Kong Macroeconomic Forecast. According to its High Frequency Macroeconomic Forecast, real GDP growth in Q1 of 2006 is forecast to moderate to 6.2%.

The real GDP growth in Q4 of 2005 is estimated to be 6.6% on a year-on-year basis, which is indeed an upward revision of the 6.0% forecast released on October 5, 2005 due to stronger GDP growth of 8.2% in 05Q3.

Professor Y.C. Richard Wong, Director of the APEC Study Center at HKU, said: "Despite further tightening of monetary conditions with the Federal Fund Rate increased by 8 times, and the 40% increase in oil prices, the global economy has not been derailed from its robust growth path."

Following the rapid real GDP growth of 8.2% in 2004, the Hong Kong economy is forecast to grow by 7.1% last year. The growth was mainly driven by external trade, with the net exports of goods and services contributed 5.2 percentage points to the overall growth." Professor Wong added.

"Global economic growth is expected to slowdown this year. Due to a weaker external environment, real GDP growth is forecast to moderate to 5.0%, with consumer inflation rate rising to 2.5% by year-end, and unemployment rate averaging around 4.8%," said by Dr Alan Siu, Executive Director of the APEC Study Center at HKU.

Forecast Highlights

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.

- Boosted by continued robust economic growth, private consumption spending rose by 4.6% in 05Q3. Positive outlook on employment growth and the holiday seasons provided further support for growth in private consumption in the last quarter, with private consumption spending projected to grow by 4.8%. For the year as a whole, private consumption grew by 4.1%. In the Q1 of 2006, private consumption spending is forecast to grow by 4.4%

- Total exports grew by 12.8% in 05Q3, faster than the 11.1% growth in 05Q2. The growth momentum is expected to moderate. It is estimated to be 10.2% in Q4 of 2005 and 10.8% for year 2005 as a whole. Total exports growth is forecast to be 10.4% in Q1 of 2006.

- After falling by 9.6% and 8.3% in 05Q1 and 05Q2 respectively, domestic exports strongly rebounded to a 14.2% growth in 05Q3, flipping the trend back onto the growth track. Domestic exports is projected to preserve its momentum to surge by 18.1% in Q4 of 2005 and 4.9% for the whole year. It is forecast to growth by 13.0% in Q1 of 2006.

- Re-exports grew by 12.7% in 05Q3 and expected to remain strong. It is estimated to grow by 9.6% in 05Q4 and 11.2% for 2005 as a whole. In the Q1 of 2006, it is projected to grow by 10.3%.

- Service exports grew by 8.2% in 05Q3. The number of visitor arrivals increased by 6.4% in October 2005, when compared with the same period in 2004. Service exports is forecast to expand by 6.5% in 05Q4 and by 8.0% for 2005 as a whole. The growth in the Q1 of 2006 is estimated to be 7.3%.

- Imports of goods grew by 11.0% in 05Q3. The growth of imports of goods is estimated to be 10.7% in 05Q4 and 8.3% for the year 2005 as a whole. The growth is forecast to be 10.4% for the current quarter.

- Import of services grew by 3.7% in 05Q3. As expected, the growth in travel related service imports was dampened by rising oil prices in Q3 and grew by only 0.3%. Service imports is forecast to grow by 6.1% in 05Q4 and 3.9% for the year of 2005. It is estimated to grow by 3.2% in the Q1 of 2006.

- The trade balance, as measured by the net exports of goods and services, is estimated to be 18.5% of GDP in 05Q3. It is forecast to be 18.0% of GDP in 05Q4 and 13.0% for the year 2005. It is projected to be 14.4% of GDP in the current quarter.

- Gross fixed investment rose by 2.4% in Q3 of 2005. The growth is expected to be 3.2% in 05Q4 and 2.6% for the year of 2005. In the Q1 of 2006, it is expected to grow by 2.1%.

- Investment in land and construction dropped by 6.7% in Q3 of 2005. Due to the lack of the commencement of major projects, the investment in land and construction is forecast to drop by 8.1% in 05Q4 and by 4.7% for the year of 2005. It is estimated to fall by 7.5% in Q1 of 2006.

- Investment spending in machinery, equipment and computer software increased by 8.1% in Q3 of 2005, and is projected to grow by 11.3% in Q4 of 2005. It is forecast to go up by 7.7% for the whole year of 2005, and up by 9.3% in the current quarter.

- Inflation, as measured by the year-on-year percentage change of the Composite CPI, grew by 1.4% in 05Q3, rising further from the 0.8% increase in 05Q2. The strength of the US dollar and the easing of increases in oil prices softened the upward pressure on consumer prices. Inflation rate is estimated to be 1.8% in 05Q4 and to be 1.1% for the year of 2005. Inflation is expected to increase slightly to 2.0% in the current quarter.

- The provisional seasonally adjusted unemployment rate stood at 5.3% in the three months average ending in November 2005, unchanged from the previous estimate for the three months ending in October 2005. Employment situation kept improving. The median duration of unemployment dropped significantly to 76 days in 05Q3 as compared to the high level of 99 days recorded in 04Q3. The unemployment rate is forecast to be 5.2% in Q4 of 2005, and to drop to 5.0% in the current quarter.

Concluding Remarks

As a small open economy, the economic outlook of Hong Kong depends critically on the external trade environment. Riding on the strong global economy in the past two years, with world output increasing by over 5% and 4% in 2004 and 2005 respectively, Hong Kong's economy has rebounded quickly from its trough brought on by SARS in the first half of 2003. Despite an expected further tightening in the monetary conditions in the first half by around 50 to 75 basis points, 2006 is forecast to be another year of robust growth, albeit at a slower pace. Hong Kong's real GDP growth will slow from 7% in 2005 to around 5% this year. Pushed up by increasing rentals, imported prices and nominal wages, consumer inflation rate will increase to 2.5% in 2006, up from an estimated 1.1% in 2005. The labour market will continue to improve, with the unemployment rate dropping from 5.6% in 2005 to an average of 4.8% this year.

About Hong Kong Macroeconomic Forecast Project

The Hong Kong Macroeconomic 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 information useful for tracking the short-term fluctuations of the economy. The current quarter macro 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. 

For media enquiries, please contact Elsie Leung of HKU's External Relations Office at tel. 2859 2600.