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HKU Announced 2007 Q2 Hong Kong Macroeconomic Forecast

11 Apr 2007

 

Continued Economic Growth

The APEC Study Center of The University of Hong Kong released its quarterly Macroeconomic Forecast today (April 11, 2007). According to the High Frequency Macroeconomic Forecast released, real GDP growth in the 07Q1 is estimated to be 5.6% when compared with the same period last year. This growth estimate is a slight upward revision from the 5.5% forecast released on January 10, 2007.

Professor Y.C. Richard Wong, Director of the APEC Study Center at HKU said that, "In the second quarter of 2007, real GDP is forecast to grow by 5.3% on a year-on-year basis. The moderation in real GDP growth is attributed by a weakening in the net external trade position, with total imports growing faster than total exports. The projected strong growth in imports is underpinned by domestic consumption and investment spending. The economic growth in the current quarter is mainly driven by domestic demand.”

"The strong domestic demand in the current quarter reflects a positive economic outlook with stable interest rates and steady global economic growth. The unemployment rate is expected to fluctuate around 4.4%. Upward pressure on prices will be temporary eased by the waiver in rates and rents in public housing estates. The inflation is forecast to edge up to 2.2% in 2007 from 2.0% in 2006," said Dr Alan Siu, Executive Director of the APEC Study Center at the University of Hong Kong.

Forecast Highlights

The highlights of our current forecasts are:

• Private consumption grew by 5.8% in the 06Q4 reflecting buoyant consumer confidence. Supported by continued improvement in the labour market, private consumption spending is forecast to grow by 5.8% in 07Q1 and 4.5% in 07Q2.

• The volume of retail sales gained 8.0% in the first 2 months of 2007. The strengthening of local demand and by the influx of Mainland visitors provided support for the continued growth of the retail sector. The volume of retail sales is forecast to grow by 7.8% in 07Q1. The growth in the volume of retail sales will moderate to 7.2% in the current quarter.

• In real terms, total exports of goods rose by 11.7% in 06Q4. The projected growth is expected to moderate to 9.7% in 07Q1. In the second quarter, export growth will accelerate to 13.5% partly resulting from the lower base of comparison.

• Domestic Exports contracted by 30.4% in 06Q4, as compared with the 3.2% decline in the 06Q3. Real domestic exports is forecast to drop by 34.5% and 28.6% in the 07Q1 and 07Q2, respectively.

• Re-exports grew by 15.0% in the 06Q4. The strong growth in re-exports is projected to be at 12.8% in 07Q1 and rise to 16.2% in 07Q2.

• Imports of goods grew by 11.4% in 06Q4, picking up from the 8.5% rate in the 06Q3. The growth of the imports of goods is forecast to be 9.3% and 13.5% in 07Q1 and 07Q2 respectively.

• Service exports grew by 7.5% in 06Q4. Visitor arrivals grew by 7.8% annually in the first two months of this year, with 60.4% of the total number of visitors coming from the mainland. Service exports is forecast to grow by 6.6% and 6.3% in 07Q1 and 07Q2, respectively.

• Service imports rose by 6.3% in 06Q4. Pay rises and positive employment outlook provide impetus for outbound tourism. Service imports is forecast to rise by 7.7% and 7.1% in 07Q1 and 07Q2, respectively.

• The trade balance, as measured by the net exports of goods and services, is estimated to be 19.8% of GDP in the 06Q4, and forecast to be 15.5% of GDP in 07Q1, and 13.8% of GDP in the current quarter.

• Gross fixed capital spending grew by 9.5% in 06Q4. Investment growth is projected to be 7.8% in 07Q1 and increase to 10.5% in 07Q2.

• Investment in land and construction dropped by 1.5% in the 06Q4. Without the commencement of large-scale construction projects, the investment in land and construction is forecast to fall by 4.5% in 07Q1 and by 3.6% in 07Q2.

• Investment spending in machinery, equipment and computer software expanded by 14.9% in the 06Q4. To meet rising demand, investment spending in this category is estimated to expand by 13.9% in 07Q1 and by 16.8% in the current quarter.

• Inflation, as measured by the percentage change in the Composite CPI, was recorded to be 2.0% and 0.8% in January and February of 2007 respectively. The waiver of rates in 07Q2 and 07Q3 will ease upward pressure on the price level. Inflation rate is forecast to moderate to 1.6% and 1.7% in 07Q1 and 07Q2 respectively.

• The provisional seasonally adjusted unemployment rate further improved from 4.4% in the 3 months ending in Jan 2007 to 4.3% in the 3 months ending in Feb 2007. The improvement in the labour market is expected to be modest in the upcoming quarters, with unemployment rate forecast to be 4.3% in 07Q1 and 4.4% in the current quarter.

Concluding Remarks

Buoyed by a strong global economy, Hong Kong has enjoyed three consecutive years of stellar economic growth, growing by 8.6% in 2004, 7.5% in 2005 and an estimated 6.8% in 2006. The growth momentum has moderated with real GDP growing at an estimated 5.4% in the first half of this year. Further deceleration in the second half is likely given the mixed economic outlook in the United States. For the year as a whole, Hong Kong's real GDP is projected to grow between 5% and 6%, with the general consumer price inflation to be around 2.2%.

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. Our quarterly forecasts can be accessed at http://www.hku.hk/apec/.