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HKU Announced 2008 Q4 HK Macroeconomic Forecast

08 Oct 2008

 

Professor Richard Wong, Deputy Vice-Chancellor and Chair of Economics of HKU (left) and Dr Alan Siu, Director of APEC Study Centre of HKU

Economic Slowdown

The APEC Study Center of The University of Hong Kong (HKU) released its quarterly Hong Kong Macroeconomic Forecast today (October 8).  According to its High Frequency Macroeconomic Forecast, real GDP growth in Q3 of 2008 is estimated to be 3.2% on a year-on-year basis.  This growth estimate is a downward revision of the 5.3% forecast released on July 3, 2008 due to the steeper moderation in private consumption in Q2.  In the fourth quarter of 2008, real GDP growth is forecast to moderate to 2.6% when compared with the same period last year.

Professor Richard Wong Yue-Chim, Professor of Economics at HKU, said that, "Clouded by the recent turmoil in the global credit market, and the weakening in global economic growth, Hong Kong's real GDP is expected to slow down to 2.9% in the second half of this year, dropping from the 5.8% growth in the first half. For the year as a whole, real GDP is forecast to grow by 4.2%.  Private consumption and gross investment are the primary growth driver, accounting for 2.3 and 1.2 percentage points of the overall growth during 2008."

"The unemployment rate is expected to go up to 3.8% in the current quarter from the estimated 3.3% in the last quarter.  Uncertainties in the global financial markets, weakening of external demand, volatile energy prices and significant drop in asset prices are dampening consumer confidence.  Consumption growth is expected to slow down, thus moderating pressure on prices.  Inflation rate is forecast to decelerate to 4.7% in the current quarter, down from the estimated 5.0% in the last quarter," according to Dr. Alan Siu, Director of the APEC Study Center at HKU.

The forecast details are in Table 1, Table 2, and Table 3 (selected mont hly indicators) of the full report at: http://www.hiebs.hku.hk/apec/macroforecasts.

All growth rates reported are on a year-on-year basis.

Forecast Highlights

  • Private consumption spending grew by 3.1% in Q2, sharply down from the 7.9% growth in Q1. This consumption growth slowdown is mainly due to the deceleration in real income growth. Confidence is hurt by falling asset prices. Private consumption expenditure is estimated to grow by 2.7% in Q3 and 2.4% in Q4. For the year as a whole, private consumption spending is forecast to grow by 3.9%, accounting for slightly more than half of the total GDP growth for the current year.
  • The volume of retail sales growth in Q2 moderated to 7.0% when compared with 11.6% in Q1. With a cloudy economic outlook, the volume of retail sales growth is forecast to tune down further to 5.7% in Q3 and 4.0% in Q4 of 2008. For 2008 as a whole, it is projected to rise by 7.0%.
  • Total exports of goods grew by 4.4% in Q2, down from the 8.3% growth in Q1. It is expected to continue to grow in the second half of 2008 but at a slower rate reflecting the slowdown in external demand. The growth in total exports of goods is estimated to be 3.3% in Q3 and 2.4% in Q4. For the year as a whole, total exports are projected to grow by 4.4% in 2008.
  • Domestic exports declined by 22.3% in Q2. The contraction is projected to continue in the second half of 2008, dropping by 23.2% in Q3 and 24.9% in Q4. It is forecast to fall by 19.1% in 2008 for the year as a whole.
  • The weakening of the global demand restrained the growth of re-exports to 5.6% in Q2, down from the 8.7% growth in Q1. Further moderation is expected given the global economic slowdown. The re-exports is estimated to grow by 4.5% in Q3 and 3.7% in Q4. For the year as a whole, it is projected to grow by 5.5%.
  • Service exports grew by 7.1% in Q2. The number of visitor arrivals increased by 10.4% in July but decreased by 2.9% in August due to the Olympic Games effect. The service exports is expected to hold up well in the coming quarters. Service exports is forecast to expand by 6.1% and 6.6% in Q3 and Q4, respectively. The annual growth is estimated to be 7.4% in 2008.
  • Concomitant to the slowdown in re-exports, the imports of goods grew by 4.9% in Q2, down from 8.4% in Q1. Reflecting a weakening in external and local demand, the growth of imports of goods is forecast to moderate to 4.8% in Q3 and 2.7% in the current quarter. The growth is projected to be 5.0% for 2008.
  • Import of services increased by 2.6% in Q2. Service imports is forecast to grow by 1.1% and 2.7% in Q3 and Q4, respectively. It is estimated to grow by 3.9% in the whole year of 2008.
  • Gross fixed capital formation rose by 4.3% in Q2 of 2008, slower than the 9.9% growth in Q1. Spending on capital goods is expected to hold up. Gross fixed capital formation is estimated to grow by 4.8% in Q3 and 3.4% in Q4 of 2008. The annual growth is estimated to be 5.5%.
  • Investment in land and construction slowed down to 0.7% growth in Q2 of 2008, in which building and construction decreased by 1.7% but costs of ownership transfer rose by 14.1%. The investment in land and construction is forecast to rise by 2.5% in Q3 and by 1.6% in Q4 of 2008. The annual increase of 2008 is estimated to be 5.0%.
  • Investment spending in machinery, equipment and computer software increased by 6.5% in Q2 of 2008. Clouded by dimmer economic outlook, it is expected to grow at a decelerated rate in the second half of this year. It is estimated to grow by 6.2% in Q3, 4.4% in Q4 and 5.8% for the year as a whole.
  • Inflation, as measured by the year-on-year percentage change of the Composite CPI, grew by 5.7% in Q2, up from the 4.6% increase in Q1. The Composite CPI rose by 4.6% in August amid the government waivers. If there were no waivers, the measured inflation rate would be 6.3% in August. Given weaker demand and uncertain economic outlook, inflationary pressure is moderating with underlying inflation rate estimated to be 6.1% in Q3 and drop to 5.8% in Q4. Taking the government's relief measures, the headline inflation rate is estimated to be 5.0% in Q3 and 4.7% in Q4. For the year as a whole, inflation is expected to be 5.0%.
  • The provisional seasonally adjusted unemployment rate stood at 3.2% in the three months average ending in August 2008. Nominal wage recorded a broad-based increase in the Q2 of 3.9%. Economic slowdown in the current quarter brings up the unemployment level. The unemployment rate is forecast to be 3.3% in Q3 of 2008, and is projected to go up to 3.8% in the current quarter. For the year of 2008 as a whole, unemployment rate is expected to be 3.4% on average.

Concluding Remarks

The continued economic expansion of the Hong Kong economy in the past four years will be arrested by the current turmoil in the global financial markets.  Real GDP is estimated to grow below its trend growth rate in Q4 at 2.6%, with the unemployment rate rising to 3.8%.  Inflationary pressure is easing but still at elevated level when compared with last year.  Further monetary easing can be expected by year-end.  Lower interest rates will provide some support to demand, but the global economic environment is expected to remain weak in the medium term.

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 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).

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