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HKU Announces 2011 Q3 HK Macroeconomic Forecast

05 Jul 2011

 

Economic Outlook
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 (July 5).  According to its High Frequency Macroeconomic Forecast, real GDP in 11Q2 is estimated to increase by 4.6% when compared with the same period last year.  This is a downward revision of our previous forecast of 5.9% growth released in March 31, 2011, reflecting a weaker external demand.  In 11Q3, real GDP growth is forecast to gain traction and rise by 5.1% when compared with the same period last year.

Professor Richard Wong Yue-Chim, Professor of Economics at HKU said that, "Following the broad-based economic growth last year with real GDP growing at an above trend-rate of 7.0%, Hong Kong's economy remained strong in the first quarter by growing at 7.2%.  In the second quarter, our external trade performance suffered because of the supply chain disruptions in Japan and the deceleration of growth in the developed economies.  The negative demand and supply shocks dragged down real GDP growth to 4.6%.  In the current quarter, the external trade sector will perform better, but output growth is forecast to be driven primarily by domestic demand.  Real GDP growth is estimated to grow by 5.1% in this quarter, with domestic demand accounting for 6.7 percentage points of this output growth and net external demand making a negative contribution of 1.5 percentage points to the overall growth.  In the first half of this year, real GDP is estimated by grow by 6% when compared with the first half of last year.  In the second half, the growth will slow to 5% reflecting a weaker global economy. For the whole year, real GDP is forecast to grow by 5.5%."

"The labour market is tight, with the unemployment rate expected to remain at the current level of 3.5%.  The general consumer price level has now exceeded the 1998Q2 historical peak level.  Inflationary pressure will continue to build up, fueled by increasing food prices and rental rates and wages.  The headline consumer inflation rate is forecast to rise to 5.9% in the current quarter, up from the estimated 5.2% in the second quarter," according to Dr. Alan Siu, Executive Director of the Hong Kong Institute 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

  • Underpinned by the strong economic growth, private consumption spending grew at 7.6% in 11Q1. It is projected to continue to grow but at a slower rate. Consumer spending is forecast to grow by 5.1% in 11Q2 and accelerate to 5.4% in 11Q3. The slowdown in consumption growth is due to the projected moderation in output growth in the 11Q2 but it is expected to regain momentum in the 11Q3.
  • The volume of retail sales grew by 21.9% in April 2011, and is projected to continue to grow at double-digit rates, supported by robust local demand, as well as by the continued strong growth in visitor arrivals. It is forecast to grow by 20.1% in 11Q2 and by 16.0% in 11Q3.
  • Total exports of goods grew by 16.8% in real terms in 11Q1, accelerating from the 8.2% increase in 10Q4. This was a sharp slowdown in the second quarter due to supply chains problems and the deceleration of growth in the developed economies. The export volume, as measured by quantum index of exports, increased only by 3.4% in May 2011, as compared with the 17.7% growth in the first quarter. The total exports of goods in real terms is estimated to grow by 1.5% in 11Q2. As the problems in the supply chains are worked out, exports of goods will revive. Total exports of goods are forecast to grow by 5.2% in 11Q3.
  • Imports of goods increased by 12.6% in 11Q1, accelerating from the 7.5% growth in 10Q4. Concomitant with the slowdown in the exports of goods, imports of goods also dropped to a slower 5.8% growth in May 2011 from the 12.9% growth in 11Q1. The imports of goods is estimated to grow by 2.6% in the last quarter and is forecast to pick up to 6.5% in the current quarter.
  • Service exports grew by 9.1% in 11Q1, continuing from the 9.3% growth in 10Q4. The slowdown in visible trade in the last quarter also suppressed the demand for trade-related services, but the strong growth in visitor arrivals continued to provide support for the tourism related service exports. The growth in service exports is forecast to moderate to 3.4% in 11Q2 but pick up to a 4.6% in 11Q3.
  • Service imports went up by 5.1% in 11Q1, moderated from the 7.7% growth in 10Q4. It is forecast to grow by 1.9% and 3.4% in 11Q2 and 11Q3 respectively.
  • Gross fixed capital formation fell by 1.1% in 11Q1, reverting from the 8.6% growth in 10Q4. Projected economic growth and infrastructural projects will provide impetus for investment spending. Gross fixed capital formation is forecast to grow by 5.7% in 11Q2 and 6.9% in 11Q3.
  • Investment in land and construction went up by 12.0% in 11Q1. The commencement of infrastructural projects will provide support for steady growth, with the growth rate projected to be 8.8% in 11Q2 and 6.4% in 11Q3. The slowdown reflects the shortage of skilled construction workers.
  • Investment spending in machinery, equipment and computer software dropped by 11.8% in the 11Q1, a sharp turnaround from the 6.4% growth in 10Q4. Underpinned by steady economic growth, investment in machinery, equipment and computer software is projected to increase by 3.1% in 11Q2 and 7.4% in 11Q3 when compared with the same period last year.
  • The general price level, as measured by the composite CPI, rose by 5.3% in May 2011, with food and housing each contributed 1.9 percentage points to the overall increase. In particular, prices in basic needs such as food excluding meals away from home and housing surged by 10.1% and 6.1% respectively. Inflationary pressure coming from rising rental rates will continue to build up due to the renewal of rental contracts signed during the 2009 financial tsunami. The headline consumer inflation rate is forecast to be 5.2% in 11Q2 and increase to 5.9% in 11Q3. The upcoming electricity charge subsidy will provide about half a percentage point relief in the measured CPI inflation rate in the second half of 2011. Without this fiscal measure, the consumer inflation rate would then be 6.4% in 11Q3. 
  • The provisional seasonally adjusted unemployment rate remained at 3.6% in the 3 months ending in May 2011. The tight labour market is expected to continue in the near term supported by strong domestic demand. The number of employed workers is estimated to increase by 19,000 persons to an all-time high at 3.6 million persons in 11Q3, and the number of unemployed workers is projected to remain unchanged in 11Q3 at 130,000. The unemployment rate is forecast to be at 3.5% in 11Q2 and 11Q3.

Concluding Remarks

Despite recovery from the supply chain disruptions in Japan, the global economy is growing more slowly due to the deceleration of growth in the developed economies.  Hong Kong's economy is forecast to grow at 5.1% in the current quarter from 4.6% in the last quarter.  The growth is primarily driven by domestic demand.  The labour market is getting very tight with the unemployment rate at 3.5% and the nominal payroll index rising by 7.2% in the first quarter.  A wage-price spiral is in the process of gathering up momentum.  Consumer price inflation will get worse in the coming months.

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

For media enquiries, please contact Ms Trinni Choy, Assistant Director (Media)
(Tel: 2859 2606/Email: pychoy@hku.hk), or Ms Melanie Wan, Manager (Media)
(Tel: 2859 2600/Email: melwkwan@hku.hk), Communications & Public Affairs Office, HKU.


HKU Announced 2011 Q3 HK Macroeconomic Forecast

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