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HKU Announces 2009 Q4 HK Macroeconomic Forecast

07 Oct 2009

 

Reverting Back to Growth The APEC Study Center of the University of Hong Kong (HKU) released its quarterly Hong Kong Macroeconomic Forecast today (Oct 7).  According to its High Frequency Macroeconomic Forecast, real GDP in 09Q3 is estimated to fall by 2.1% when compared with the same period last year.  This estimate is an upward revision from the previous forecast of a 3.3% drop released on July 8, 2009 due to the improvement in private consumption.  In the fourth quarter of 2009, real GDP growth is forecast to rise by 1.0% when compared with the same period last year.

Professor Richard Wong Yue-Chim, Professor of Economics at HKU said that, "Given the recovery of the global economy, pickup in export orders, massive fiscal stimuli, low interest rates and ample liquid funds, the Hong Kong economy has started to recover in the second quarter, and the healing process is projected to continue.  Hong Kong's real GDP is estimated to contract by 0.5% in the second half of 2009, which is a marked improvement from the 5.8% drop in the first half of this year.  For the year as a whole, real GDP is forecast to decrease by 3.1% in 2009.  The drop in real GDP is concentrated in domestic sector reflecting the repercussion of the global financial turmoil.  The fall in domestic demand is estimated to account for 2.9 percentage points of the overall 3.1 % decrease in real GDP in the current year."

"On a quarter-on-quarter basis, seasonally adjusted real GDP reverted to a growth rate of 3.3% in 09Q2, after contracting for a full year.  The growth momentum is holding up with the corresponding growth rates estimated to be 0.9% and 1.3% in 09Q3 and 09Q4 respectively.  Given the economic recovery, the local labour market will improve in the current quarter, with the unemployment rate projected to drop to 5.2% from the estimated 5.3% in the last quarter.  Consumer prices remain soft, with the composite CPI forecast to drop by 0.1% in the current quarter. There is no evidence for a buildup in inflationary pressure.  Prices are expected to be stable in the near term," 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

• Private consumption spending shrank by 1.0% in 09Q2, improving from the 6.0% drop in 09Q1. The turnaround of the global economy and the buoyancy in the stock and property markets have helped to stabilize consumer confidence. Continuous improvement is expected in the current quarter. Private consumption expenditure is estimated to grow by 0.2% in 09Q3 and 1.1% in 09Q4. For the year as a whole, private consumption spending is forecast to decrease by 1.4%.
• The volume of retail sales fell by 1.0% in August 2009, doing better than the 5.2% drop in the previous month. With the improvement in private consumption and increase in Mainland visitors, the fall in volume of retail sales is expected to moderate from 5.4% in 09Q2 to 2.4% in 09Q3. It is forecast to revert to a growth of 1.6% in 09Q4. For 2009 as a whole, it is projected to fall by 2.9%.
• Total exports of goods shrank by 12.4% in real terms in 09Q2 which is a better performance than the 22.7% drop in 09Q1. There are signs of stabilization but the adjustment process is expected to be slow. The total exports of goods in real terms is estimated to fall by 13.5% in 09Q3, and is forecast to continue to fall at a lower rate in the current quarter by 8.7%. For the year as a whole, total exports is forecast to drop by 14.2% in 2009.
• Imports of goods dropped by 12.7% in 09Q2 which is smaller than the 21.4% fall in 09Q1. Concomitant with the decline in the exports of goods, the imports of goods is forecast to decrease by 12.3% and 7.7% in 09Q3 and 09Q4 respectively. For the year as a whole, it is projected to decrease by 13.4%.
• Service exports fell by 5.7% in 09Q2. The fall in visible trade also dragged down trade related services. The rise in visitor arrivals offset the decrease via travel related services. The drop in service exports is forecast to moderate to 3.3% in 09Q3 and reverted to grow by 0.7% 09Q4. The annual decline is estimated to be 3.6%.
• Service imports contracted by 5.6% in 09Q2. Service imports is forecast to shrink by 7.4% and 3.8% in 09Q3 and 09Q4 respectively. It is estimated to fall by 6.6% in the whole year of 2009.
• Gross fixed capital formation fell by 14.0% in 09Q2. Gross investment is projected to fall by 3.0% in 09Q3. Given the lower base of comparison, it is forecast to grow by 7.3% in the current quarter when compared to the same period last year. The annual decline is estimated to be 6.4%.
• Investment in land and construction dropped by 8.1% in 09Q2, and is projected to fall by 4.1% in 09Q3 and by 0.4% in 09Q4. The annual decline of 2009 is estimated to be 9.3%.
• Investment spending in machinery, equipment and computer software contracted by 18.0% in the 09Q2, and is forecast to fall by 2.4% in 09Q3. With an lower base of comparison, it is projected to increase by 13.1% in the current quarter when compared with the same period last year. It is projected to fall by 4.2% for the year of 2009 as a whole.
• The general price level, as measured by the Composite CPI, dropped by 1.7% in August 2009, reflecting the downward pressure on prices. The increase in food prices has been arrested by the fall in domestic demand. If there were no fiscal measures, the price index would have dropped by only 0.3%. Despite continuous improvement in consumer sentiment, prices will remain soft due to the weak job market and falling wages. The nominal wage fell by 0.9% in 09Q1 and worsened to a 1.9% drop in 09Q2. This downward adjustment in wages is projected to be completed in the current quarter. Headline consumer inflation rate is forecast to be falling by 1.2% in 09Q3, and dropping by 0.1% in the current quarter with the end of the subsidy on the use of electricity. Take into accounting of the 1.7% increase in the price level in 09Q1, the consumer inflation is estimated to be 0.1% for the year of 2009 as a whole.
• The provisional seasonally adjusted unemployment rate stood at 5.4% in the 3 months ending in August 2009. The median duration of unemployment rose significantly from 72 days in 09Q1 to 90 days in 09Q2, reflecting the scarcity of jobs. The labour market is expected to improve slowly, with the unemployment rate forecast to be 5.3% in 09Q3 and further improve to 5.2% in the current quarter. The number of jobless workers is estimated to fall from 197,000 in 09Q3 to 194,000 in 09Q4. The number of jobs is forecast to increase by 12,000 in the current quarter, bringing the total employment to 3.54 million workers. For the year of 2009 as a whole, the unemployment rate is estimated to average out to be 5.3%.

Concluding Remarks

The worst global recession since the WWII was over by the middle of this year, and the worldwide economic recovery is now under way.  The rebound in the Hong Kong's economy is stronger than expected in the summer because of a more rapid pickup in export orders and strong performance in the stock and property markets.  But there are risks to growth.  Sustained global economic growth requires rebalancing demand from countries running trade deficit to those with trade surplus, in particular from the US to China.  This demand switching will only happen with a weaker US dollar against the RMB.  Even though prices are expected to be stable in the near term, inflation will become a concern with a weaker dollar.  The rebalancing also means that Hong Kong has to develop new export markets to remain on its growth path.

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 (Media), Communications and Public Affairs Office, HKU (Tel: 2859 2606 /E-mail: pychoy@hku.hk ) or Ms Melanie Wan, Manager (Media), Communications and Public Affairs Office (Tel: 2859 2600 / Email: melwkwan@hku.hk).