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HKU Announces 2010 Q2 HK Macroeconomic Forecast

31 Mar 2010

 

Slowly on the Mend

The APEC Studies Programme of the Hong Kong Institute of Economics and Business Strategy at the University of Hong Kong (HKU) released its quarterly Hong Kong Macroeconomic Forecast today (Mar 31). According to its High Frequency Macroeconomic Forecast, real GDP in 10Q1 is estimated to increase by 5.4% when compared with the same period last year. This estimate is an upward revision from the previous forecast of a 5.0% growth released on January 11, 2010, reflecting a stronger pickup in domestic demand. In 10Q2, real GDP growth is forecast to rise only by 4.1% when compared with the same period last year.

Professor Richard Wong Yue-Chim, Professor of Economics at HKU said that, "The Hong Kong economy has started to recover at a tepid pace in the second half of 2009, with real GDP growing by only 0.2% when compared with the second half of 2008. The growth momentum is picking up. Hong Kong's real GDP is estimated to grow by 4.8% in the first half of 2010. The primary driver is domestic demand, with consumption and investment spending providing the growth impetus. Consumption spending is estimated to account for 2.8 percentage points to the overall 4.1% GDP growth in the 10Q2. The strong domestic demand is a reflection of the steady global economic recovery, the strong growth in the Mainland, as well as the low interest rate environment."

"The job market is projected to improve further with the unemployment rate forecast to drop to 4.5% in 10Q2 from the estimated 4.6% in 10Q1. Inflationary pressure is building up because of the weak US dollar and the booming property market leading to higher rental rates. The upward pressure is forecast to be mild in the first half of this year, with the composite CPI projected to increase by 1.5% in 10Q2," according to Dr. Alan Siu, Executive Director of the Hong Kong Institution of Economics and Business Strategy 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/macroforecast.htm.

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

Forecast Highlights

• Given the continued improvement in the job market, strong economic growth in the mainland and vibrant asset markets, the recovery of private consumption spending which started in the second half of last year is projected to continue. The growth of private consumption spending is forecast to be 5.2% in 10Q1 and decelerate to 4.3% in 10Q2. The slowdown in the growth of consumption in the second quarter this year is attributed to a relatively strong base of comparison in 09Q2.
• The volume of retail sales increased only by 3.2% in January 2010. This modest growth rate is due to the different timing of Lunar New Year, as the Chinese New Year fell in January 2009 and in February 2010. The growth in retail sales is projected to revert back to double-digit rates in the next couple of months, supported by robust local demand, as well as the continued strong growth in visitor arrivals. The growth in volume of retail sales is estimated to be 13.5% in 10Q1 and pick up to 16.2% in 10Q2.
• Total exports of goods shrank by 2.6% in real terms in 09Q4 which was a marked improvement when compared with the 13.2% drop in 09Q3. Reflecting the global economy recovery, external demand has picked up rapidly. In the first two months of this year, the exports of goods from Hong Kong registered robust growth, with electrical machinery, telecommunication equipment and office machinery rose by 46.9%, 16.9% and 27.9% respectively. The total exports of goods in real terms is estimated to grow by 21.3% in 10Q1, and is forecast to moderate to grow by 15.3% in the 10Q2.
• Imports of goods increased by 3.1% in 09Q4, a turnaround from the 8.3% fall in 09Q3. In tandem with the strong exports of goods, imports of goods also grew rapidly in the first two months of this year, with electrical machinery, telecommunication equipment and office machinery growing by 59.3%, 21.8% and 31.3% respectively. The imports of goods is forecast to increase by 25.7% and 18.9% in 10Q1 and 10Q2 respectively. Imports of goods grew more rapidly than exports of goods reflects inventory rebuilding, and results in a very large visible trade deficit estimated to be around 73 billion or 18% of GDP in 10Q2.
• Service exports grew by 7.7% in 09Q4, reverted from the 0.5% fall in 09Q3. The revival in visible trade led to a pickup in the trade related services. Hong Kong continues to benefit from the success of the Mainland Individual Visit Scheme. In the second half of last year, 61% mainland visitors traveled to Hong Kong by this scheme, as compared to 13% when the scheme was first introduced in the second half of 2003. The influx of Mainland visitors remains the main driver in the growth of visitor arrivals which is the engine for travel related services. The increase in service exports is forecast to be 14.6% in 10Q1 and moderate to 12.2% 10Q2.
• Service imports went up by 2.4% in 09Q4, turning around from the 3.3% drop in 09Q3. Service imports is forecast to grow by 3.9% and 2.8% in 10Q1 and 10Q2 respectively.
• Gross fixed capital formation surged by 14.7% in 09Q4, picking up from the 2.6% growth in 09Q3. This marked increase in gross investment in 09Q4 is partly due to a lower base of comparison. The global economic recovery and infrastructural projects will continue to provide impetus for investment spending. The gross fixed capital formation is projected to grow by 7.9% in 10Q1 and 12.6% in 10Q2.
• Investment in land and construction went up by 12.8% in 09Q4. The commencement of the HK-Zhuhai-Macao bridge project, as well as other infrastructural projects in the pipeline will provide support for steady growth, with the growth rate projected to be 8.9% in 10Q1 and 11.2% in 10Q2.
• Investment spending in machinery, equipment and computer software surged by 16.2% in the 09Q4. Underpinned by the continued economic recovery, investment in machinery, equipment and computer software is projected to increase by 7.1% in 10Q1 and 13.7% in 10Q2 when compared with the same period last year.

• The general price level, as measured by the Composite CPI, rose by 2.8% in February 2010. Inflationary pressure is building up because of the weak US dollar and the booming property market leading to higher rental rates, but the pressure is projected to be mild in the first half of this year. The headline consumer inflation rate is forecast to be 1.3% in 10Q1 and increase slightly to 1.5% in 10Q2.

• The provisional seasonally adjusted unemployment rate improved to 4.6% in the 3 months ending in February 2010 from 4.9% in the 3 months ending in January 2010. This improvement is primarily due to an increase of 8,000 employed workers during this period. The unemployment rate is forecast to be 4.6% in 10Q1, and to fall to 4.5% in 10Q2. The number of employed workers is estimated to increase by 20,000 in 10Q2, and the number of unemployed workers is projected to fall by 2,000.

Concluding Remarks

The tepid economic recovery started in the second half of last year will strengthen in the first half of this year with real GDP forecast to grow at close to its trend rate of growth. But the growth is primarily fueled by domestic demand, with external demand still relatively weak given the deep recession engulfing the developed world. The global economy is slowly on the mend. It will need more time to fully recover from the biggest financial crisis since WWII.

About Hong Kong Macroeconomic Forecast Project

The Hong Kong Macroeconomic Forecast is based on research conducted by the APEC Studies Programme of the Hong Kong Institute of Economics and Business Strategy at HKU in the 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 APEC Study Center which is now a research programme area of the Hong Kong Institution of Economics and Business Strategy.

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 Hong Kong Institution of Economics and Business Strategy are solely responsible for the accuracy and interpretation of the forecasts. Our quarterly forecasts can be accessed at:

http://www.hiebs.hku.hk/apec/macroforecast.htm  

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(Tel: 2859 2606/Email: pychoy@hku.hk ), or Ms Melanie Wan, Manager (Media)
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