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HKU Announces 2009 Q2 HK Macroeconomic Forecast

02 Apr 2009

 

Bracing for Deep Recession

The APEC Study Center of the University of Hong Kong (HKU) released its quarterly Hong Kong Macroeconomic Forecast today (April 2).  According to its High Frequency Macroeconomic Forecast, real GDP in the 09Q1 is estimated to fall by 6.4% when compared with the same period last year.  Reflecting the sharp fall in global economic growth induced by the financial tsunami, this growth estimate is a downward revision from the -2.6% forecast released on January 7, 2009.

Professor Richard Wong Yue-Chim, Professor of Economics at HKU said that, "Hong Kong's real GDP started to fall in the final quarter of last year, and the downward adjustment is expected to continue.  In the current quarter, Hong Kong's real GDP is forecast to shrink by 5.1% on a year-on-year basis.  The contraction in output is due to the sharp fall in both external and domestic demand.  In the current quarter, real GDP is estimated to be 10.2% below the potential output, and the cumulative output loss since 08Q4 is estimated to be 111 billion in 2006 prices which is 6.9% of the real GDP in 2008."

"Inflationary pressures are arrested by the sharp economic downturn.  The headline inflation rate is projected to decelerate from 1.7% in 09Q1 to 0.3% in the current quarter.  The continued weakness of both external and domestic demand will weigh down the labour market further, with the unemployment rate forecast to increase to 6.0% in the current quarter.  Comparing with the end of 2008, the number of jobless workers is estimated to increase by 80,000 persons by June this year," according to Dr. Alan Siu, Director of the APEC Study Center at HKU.

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

Forecast Highlights

• As the global financial tsunami swept into the region, private consumption spending contracted by 3.2% in the final quarter of last year. The sharp drop in retirement savings, coupled with the continued deterioration in the labour market, have raised the propensity to save among Hong Kong households. Private consumption spending is forecast to fall by 4.4% in 09Q1 and 3.6% in 09Q2.
• The volume of retail sales increased by 5.4% in January 2009. Despite the global economic turmoil, the influx of Mainland visitors provided support for the growth of the retail sector. However, domestic demand is weakening given the economic downturn. The volume of retail sales is forecast to fall by 0.1% in 09Q1 and to shrink further by 1.5% in the current quarter.
• In real terms, total exports of goods shrank by 4.9% in 08Q4. The sharp reduction in the external demand is reflected by the 23.0% decline in nominal exports in Feb 2009. The total exports of goods in real terms is estimated to decrease by 24.5% in 09Q1, and is forecast to continue to fall at a lower rate in the current quarter by 21.1%. The 24.5% fall in total exports in Q1 set a historical record, beating the previous drop of 18.0% in 74Q4.
• Imports of goods dropped by 6.4% in 08Q4. Concomitant with the sharp decline in the exports of goods, the imports of goods is forecast to decrease by 23.4% and 21.0% in 09Q1 and 09Q2 respectively.
• Service exports fell by 0.2% in 08Q4. The fall in visible trade also dragged down the trade related service. Service exports is forecast to drop by 9.0% and 5.8% in 09Q1 and 09Q2 respectively.
• Service imports contracted by 2.5% in 08Q4. Service imports is forecast to shrink by 5.0% and 5.2% in 09Q1 and 09Q2 respectively.
• The trade balance, as measured by the net exports of goods and services, is estimated to be 14.7% of GDP in the 08Q4, and forecast to be 9.2% of GDP in 09Q1, and 8.1% of GDP in the current quarter.
• Gross fixed capital formation fell by 17.3% in 08Q4. Clouded by an uncertain business outlook, gross investment is projected to fall by 13.6% in 09Q1 and 15.7% in 09Q2.
• Investment in land and construction dropped by 15.1% in 08Q4, and is projected to fall further by 16.2% in 09Q1 and by 17.2% in 09Q2.
• Investment spending in machinery, equipment and computer software contracted by 18.7% in the 08Q4. Given weak global economic growth and the credit crunch, investment spending in machinery, equipment and computer software is estimated to decrease by 11.6% in 09Q1 and by 14.8% in the current quarter.
• Inflation, as measured by the percentage change in the Composite CPI, was 0.8% in February 2009, with decelerated increases in food prices and private rental. If there were no fiscal measures, the inflation rate would have been 2.1%. Inflationary pressure will diminish further as the recession deepens. Headline consumer inflation rate is forecast to decelerate from 2.3% in 08Q4 to 1.7% in 09Q1 and 0.3% in 09Q2.
• The provisional seasonally adjusted unemployment rate picked up from 4.3% in the 3 months ending in Jan 2009 to 5.0% in the 3 months ending in Feb 2009. The labour market will deteriorate further, with the unemployment rate forecast to be 5.3% in 09Q1 and to rise further to 6.0% in the current quarter. The number of unemployed workers is estimated to rise from 195,000 in 09Q1 to 221,000 in 09Q2.

Concluding Remarks

Being a small and open economy dependent on trade and financial services, Hong Kong cannot possibly escaped from being battered by the financial crisis which has severely dampened global activity.  Hong Kong's economy is forecast to contract by 5.8% in the first half of this year, with real GDP estimated to be falling by 6.4% and 5.1% in the first and second quarter respectively.  This is in sharp downturn from the 5.8% real GDP growth recorded in the first half of last year.  Despite all the massive fiscal stimuli and accommodating monetary policies, the global economic environment will remain weak, with the IMF predicting the contraction in 2009 for the first time in 60 years.  However, Hong Kong's external trade is expected to stabilize in the coming months due to inventory rebuilding in the developed economies.  For the whole year of 2009, the Hong Kong economy is projected to shrink by 3%, following the 2.5% growth last 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 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. 

For media enquiries, please contact Ms Trinni Choy, Assistant Director of External Relations (Tel: 2859 2606/Email: pychoy@hku.hk ) or Ms. Joanne Yung, Manager (Media), External Relations Office, HKU (Tel: 2859 2600 / Email: hkumedia@hku.hk ).