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HKU Announced 2007 Q3 HK Macroeconomic Forecast

04 Jul 2007

Hong Kong Economic Outlook

The APEC (Asia-Pacific Economic Co-operation) Study Center of The University of Hong Kong (HKU) released its quarterly Macroeconomic Forecast today (July 4). According to the High Frequency Macroeconomic Forecast, real GDP growth in the second quarter of this year is estimated to be 5.4 % on a year-on-year basis. The growth estimate is a minor upward revision of the 5.3% forecast released on April 3, 2007. In the current quarter, real GDP growth is forecast to moderate to 5.2% when compared with the same period last year.

For the chart of 'Real Gross Domestic Product', please click here.

Dr Alan Siu, Director of the APEC Study Center at HKU said that, "Reflecting the projected slowdown in the global economy, Hong Kong's real GDP is expected to grow by 5.5% in the first half of this year and slow down to 4.9% in the second half. The full-year growth estimate is around 5.2%, dropping from the 6.9% annual growth recorded last year."

"The real GDP growth in the third quarter is forecast to be 5.2%. The growth is driven both by domestic and external demand, with private consumption spending and gross fixed investment contributing 2.2 and 1.0 percentage point, respectively, to the overall growth, while the net exports of goods and services are estimated to account for 0.9 percentage point of the output growth."

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

Underpinned by continued improvement in the labour market, and buoyed by a positive economic outlook, private consumption spending grew strongly by 5.6% in 07Q1. Consumption spending is expected to continue to grow but at a more moderate rate. It is forecast to grow by 4.5% in the second quarter and further moderate to 4.4% in the third quarter.
The volume of retail sales in 07Q1 recorded a year-on-year increase of 6.6%, with an across-the-board improvement amongst all categories. The volume of retail sales is forecast to grow by 5.3% in 07Q2, and 6.3% in 07Q3.
Total export of goods has enjoyed double-digit growth for 5 consecutive years. Following the 8.2% increase in 07Q1, the growth in total exports is expected to pick up, with growth in 07Q2 forecast to be 11.1% and 8.3% in 07Q3.
Domestic Exports dropped by 33.1% in the 07Q1. Domestic exports is forecast to fall by 19.2% and 16.7% in 07Q2 and 07Q3, respectively.
Re-exports grew by 11.0% in the 07Q1. Re-exports of goods is estimated to grow by 13.1% and 9.8% in 07Q2 and 07Q3 respectively.
Service exports grew by 8.4% in the 07Q1. Service exports is forecast to grow by 9.0% and 9.9% in the 07Q2 and 07Q3, respectively.
Import of goods grew by 8.6% in the 07Q1. The growth of imports of goods is expected to be 11.8 % in the 07Q2 and 9.7% in the 07Q3.
Import of services rose by 3.9% in the first quarter. Service imports is forecast to grow by 1.9% and 2.5% in the 07Q2 and 07Q3, respectively.
The external trade balance, as measured by the net exports of goods and services, is estimated to be 15.4% of GDP in the 07Q1. It is forecast to be 13.5% of GDP in the 07Q2, and expand to 20.3% of GDP in the current quarter, due to the strong growth in service exports.
Gross fixed capital formation rose by 3.9% in the 07Q1. It is expected to grow by 6.1% in the 07Q2 and 4.5% in the 07Q3.
Investment in land and construction went down by 2.1% in the 07Q1. Construction related investment will remain weak. The investment in land and construction is forecast to drop by 4.9% in the second quarter and by 2.5% in the third quarter.
Investment spending in machinery, equipment and computer software increased by 6.8% in the 07Q1. It is estimated to grow by 11.0% in the second quarter and 7.3% in the current quarter.

For the chart of 'Composite Consumer Price Index', please click here.

Inflation, as measured by the year-on-year percentage change of the Composite CPI, grew by 1.7% in the first quarter, dropping from the 2.1% increase in the fourth quarter of last year. Due to the rate concession granted for the second and third quarters, the consumer inflation rate is expected to drop further to 1.4% in 07Q2 and 1.3% in the current quarter. The inflation is forecast to accelerate after the end of the rate waiver.

For the chart of 'Unemployment Rate', please click here.

The provisional seasonally adjusted unemployment rate stood at 4.3% in the three-month average ending in May 2007, unchanged from the previous three-month average ending in April 2007. The unemployment rate is forecast to remain at 4.3% in the 07Q2, and improve slightly to 4.2% in the current quarter.

Concluding Remarks

The slowdown of the global economy has turned out to be milder than was expected. In particular, despite a deepening housing slump, the US economy is projected to perform better in the second-half of this year, and the Mainland economy is forecast to maintain its high-growth trajectory. For the year as a whole, Hong Kong's real GDP growth is forecast to be 5.2%. Inflationary pressure will continue to build up, fueled by rising wages, rentals and prices of imports. By year-end, consumer price inflation rate is forecast to increase to 3.0%.

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.hiebs.hku.hk/apec/macroforecasts

For media enquiries, please contact Ms Denise Wong, Manager (Media), External Relations Office, HKU ( Tel: 2859 2600 / 9842 6002 / E-mail: denise.wong@hku.hk ).

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