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HKU Announced 2007 Q1 HK Macroeconomic Forecast

10 Jan 2007

 

Hong Kong Economic Outlook

The APEC Study Center of the University of Hong Kong released its quarterly Hong Kong Macroeconomic Forecast today (January 10, 2007). According to its High Frequency Macroeconomic Forecast, Hong Kong's real GDP in Q4 of 2006 is forecast to grow by 5.8% on a year-on-year basis. This growth estimate is an upward revision of the 4.5% forecast released on October 10, 2006 due to stronger growth in domestic spending. In the first quarter of 2007, real GDP growth is projected to moderate to 5.5%, reflecting a mild slowdown in the global economy. 

Professor Y.C. Richard Wong, Director of the APEC Study Center at HKU said that, "Riding the tide of the strong global economy, Hong Kong experienced another year of robust economic growth, with real GDP growth estimated to be 6.5% in 2006, following the high growth of 8.6% in 2004 and 7.3% in 2005. The economic growth in last year was mainly driven by domestic demand, with private consumption and gross investment contributed 2.7 and 1.7 percentage points respectively to the overall growth."

"After three consecutive years of strong growth, the global economy is expected to have a mild slowdown. The Mainland economy is projected to grow at 9.5% in 2007, down from the estimated 10.5% growth in 2006, while the US economy is expected to grow at around 3% in 2007, down from the estimated 3.4% in 2006. Given a weaker external environment, Hong Kong's real GDP growth will moderate, but will still be above trend. Buoyed by robust consumption spending, real GDP is forecast to be 5.5% in the current quarter," according to Dr Alan Siu, Executive Director of the APEC Study Center at HKU.

Forecast Highlights

• Private consumption spending provided much of the growth impetus last year. Following the strong growth of 4.4% in 06Q3, it is projected to grow by 6.3% in 06Q4. For the year as a whole, private consumption grew by 5.1%. In the current quarter, private consumption spending is forecast to grow by 5.8%.

• Total exports of goods grew by 8.9% in 06Q3, faster than the 6.4% growth in 06Q2. The growth momentum is expected to continue. It is estimated to be 11.4% in Q4 of 2006 and 10.1% for year 2006 as a whole. Total exports growth is forecast to moderate to 8.3% in Q1 of 2007, reflecting a mild slowdown in the global economy.

• After surging by 44.4% and 25.7% in 06Q1 and 06Q2 respectively, domestic exports reverted to fall by 3.2% in 06Q3. Domestic exports is projected to drop by 17.4% in Q4 of 2006 but still maintained 6.5% growth for the year of 2006 as a whole. It is forecast to decrease by 15.0% in Q1 of 2007.

• Re-exports grew by 9.8% in 06Q3 and expected to remain strong. It is estimated to grow by 13.7% in 06Q4 and 10.4% for 2006 as a whole. In the Q1 of 2007, it is projected to grow by 9.9%.

• Service exports grew by 8.6% in 06Q3. The total number of visitor arrivals is expected to be around 25.1 million in 2006, growing by 7.5% from the 23.4 million arrivals in 2005. Service exports is forecast to expand by 7.0% in 06Q4 and by 8.3% for 2006 as a whole. The growth in the Q1 of 2007 is estimated to be 6.2%.

• Imports of goods grew by 8.5% in 06Q3. The growth of imports of goods is estimated to be 11.6% in 06Q4 and 10.1% for the year 2006 as a whole. The growth is forecast to be 8.0% for the current quarter.

• Import of services grew by 5.5% in 06Q3. Service imports is forecast to grow by 6.2% in 06Q4 and 6.2% for the year of 2006. It is estimated to grow by 8.7% in the Q1 of 2007.

• The trade balance, as measured by the net exports of goods and services, is estimated to be 20.3% of GDP in 06Q3. It is forecast to be 19.2% of GDP in 06Q4 and 17.2% for the year 2006. It is projected to be 15.0% of GDP in the current quarter.

• Gross domestic fixed capital formation rose by 12.7% in Q3 of 2006. Due to the higher base of comparison, the growth is expected to continue but at a lower rate of 3.9% in 06Q4 and 7.3% for the year of 2006. In the Q1 of 2007, it is expected to grow by 4.1%.

• Investment in land and construction dropped by 4.6% in Q3 of 2006. Due to the lack of the commencement of major projects, the investment in land and construction is forecast to drop by 9.0% in 06Q4 and by 9.0% for the year of 2006. It is estimated to fall by 5.8% in Q1 of 2007.

• Investment spending in machinery, equipment and computer software increased sharply by 22.4% in Q3 of 2006, and is projected to grow by 10.4% in Q4 of 2006. It is forecast to go up by 16.9% for the whole year of 2006, 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 2.3% in 06Q3, rising further from the 2.0% increase in 06Q2. The easing of oil prices softened the upward pressure on consumer prices. Inflation rate is estimated to be 2.1% in 06Q4 and to be 2.0% on average for the year of 2006. Inflationary pressure is expected to pick up fueled by the strong growth in consumption spending. The consumer inflation rate is estimated to be 2.5% in the current quarter.

• The provisional seasonally adjusted unemployment rate further improved to 4.4% in the three months average ending in November 2006 from 4.5% in the three month ending in October. The improvement in the labour market is also reflected by the declining number of involuntary unemployed workers. Involuntary unemployment due to dismissal or layoff now only accounts for around 60% of the unemployed, down from the 80% level in 03Q2. The unemployment rate is forecast to be 4.4% in Q4 of 2006, and remain at 4.4% in the current quarter. 

Concluding Remarks

On the back of a strong global economy, Hong Kong has enjoyed three consecutive years of stellar economic growth, growing by 8.6% in 2004, 7.3% in 2005 and an estimated 6.5% in 2006. The growth momentum is expected to further moderate with the real GDP growing between 5% and 6% for the year as a whole. Inflationary pressure will continue with the general consumer price level forecast to be up by around 2.5% by year-end. Employment outlook remains positive with the unemployment rate averaged to be around 4.2% in the current year.

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 Faculty of Business and Economics. 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.