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HKU Announces 2011 Q4 HK Macroeconomic Forecast

12 Oct 2011

 

Slower Economic Growth

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 (Oct 12).  Following the robust performance in the first half of 2011, with real GDP growing by 7.5% in 11Q1 and 5.1% in 11Q2, output growth is expected to continue in the second half of this year but at a much slower pace.

According to its High Frequency Macroeconomic Forecast, real GDP is estimated to increase by 4.3% in 11Q3 when compared with the same period last year.  This estimate is a downward revision from the previous forecast of a 5.1% growth released on July 5, 2011, reflecting a slowing down in the external economies.  In 11Q4, real GDP growth is forecast to grow by 3.3% when compared to the same period last year.

Professor Richard Wong Yue-Chim, Professor of Economics at HKU said that, "After expanding at above its trend rate of growth for 6 consecutive quarters since 2010Q1, the Hong Kong economy has been slowing down since the summer.  Its real GDP in 2011 is estimated to grow by 3.8% in the second half of this year, dropping from the 7.3% increase in the first half.  This deceleration in output growth reflects a slowdown in the developed economies which has been worsened by the turmoil in the financial markets and the credit crunch faced by small and medium sized firms.  For the year as a whole, real GDP is forecast to increase by 5.0%, as compared with the 7% growth in 2010. The growth in real GDP is driven by domestic demand, with external demand making a negative contribution.  The increase in domestic demand is estimated to account for 5.1 percentage point of the 5.0% overall increase in real GDP in the current year, while the net exports of goods and services is estimated to subtract 0.1 percentage point from overall growth."

"Clouded by economic uncertainties and given slower economic growth, the job market will worsen.  The unemployment rate is projected to rise from 3.2% in 11Q3 to 3.4% in 11Q4, with the number of unemployed workers forecasted to rise by 7,000, and the number of employed workers estimated to decrease by 26,000.  The headline inflation is forecast to be 6.0% in the second half of this year, up from the 4.5% increase in the first half.  For the year as a whole, the headline consumer inflation is estimated to be 5.2% for the year of 2011, as compared to the 2.3% increase in 2010", 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

  • Falling asset prices and the deceleration of output growth will dampen the growth in private consumption spending which has been boosted by a robust job market so far this year. Private consumption spending is projected to grow by 6.3% in the current quarter, slowing down from 7.5% increase in the 11Q3. For the year as a whole, private consumption spending is forecast to grow by 7.7%.
  • The volume of retail sales increased by 20.7% in August 2011, following the 22.4% increase in July. It has risen consecutively for 24 months in a row. Given slower economic growth, despite the continued influx of Mainland visitors, the growth momentum in retail sales is projected to decelerate. The growth in the volume of retail sales is estimated to be 21.0% in 11Q3 and moderate to 12.4% in 11Q4. For the 2011 as a whole, it is projected to grow by 17.7%.
  • Exports of goods inched up by 0.3% in 11Q2, a sharp brake from the 16.8% growth in 11Q1. The unfolding of the Europe sovereign debt crisis and anemic growth in the US will continue to drag down the exports of goods. The growth of the exports of goods is estimated to be 0.8% in 11Q3, and picking up to 5.7% in the current quarter. For the year as whole, total exports of goods is forecast to increase by 5.4% in 2011.
  • Imports of goods increased by 2.6% in 11Q2, dropping sharply from the 12.6% growth in 11Q1. In tandem with the slow growth in the exports of goods, imports of goods is forecast to grow by 4.0% in 11Q3 and to rise by 7.2% in 11Q4. For the year as a whole, it is projected to grow by 6.4%.
  • Service exports grew by 7.8% in 11Q2, decelerating from the 9.3% growth in 11Q1. Although the growth in trade related services went down from 11.4% in 11Q1 to 3.4% in 11Q2, travel related services surged from 10.8% in 11Q1 to 17.9% in 11Q2, fueled by the surge of visitors from the Mainland. The increase in service exports is forecast to be 5.9% in 11Q3 and 7.6% 11Q4. The annual growth is estimated to be 7.6%.
  • Service imports went up by 2.9% in 11Q2, decelerating from the 5.8% growth in 11Q1. Service imports is forecast to grow by 3.1 and 2.2% in 11Q3 and 11Q4 respectively. It is estimated to grow by 3.5% in the whole year of 2011.
  • Gross fixed capital formation grew by 8.1% in 11Q2, reverting from the 0.3% drop in 11Q1. Infrastructural projects will continue to provide impetus for investment spending. The gross fixed capital formation is projected to grow by 5.8% in 11Q3 and 4.0% in 11Q4. The annual growth is estimated to be 4.5%.
  • Investment in land and construction dropped by 2.4% in 11Q2. With the continue of infrastructural projects, the growth momentum is expected to resume, with the growth rate projected to be 2.8% in 11Q3 and 3.6% in the current quarter. The annual growth of 2011 is estimated to be 4.2%.
  • Investment spending in machinery, equipment and computer software surged by 17.4% in the 11Q2, reverting the 12.1% drop in 11Q1. Underpinned by the continued development projects, investment in machinery, equipment and computer software is projected to increase by 8.5% in 11Q3 and 4.4% in 11Q4 when compared with the same period last year. It is projected to increase by 4.7% for the year of 2011 as a whole.
  • The general price level, as measured by the Composite CPI, rose by 5.7% in August 2011. If there were no fiscal measures, the price index would have risen by 6.3%. The headline consumer inflation rate is estimated to be 6.4% in 11Q3 and after stripping out the effects of fiscal relief measures, the rate would be 6.1% in 11Q3. Rising food prices and rentals will push the price level higher, with the consumer inflation rate and the underlying inflation rate forecast to be 5.6% and 6.2% respectively in the current quarter. For the year as a whole, the headline consumer inflation is estimated to be 5.2% for the year of 2011, as compared to the 2.3% increase in 2010.
  • With an additional 10,800 jobs, the provisional seasonally adjusted unemployment rate improved slightly to 3.2% in the 3 months ending in August 2011 from the 3.4% in the 3 months ending in July 2011. The unemployment rate is forecast to be 3.2% in 11Q3, and rise to 3.4% in 11Q4 reflecting slower economic growth. The number of unemployed workers is projected to increase by 7,000 to 127,000 in the current quarter, with the number of employed workers estimated to be 3,610,000. For the year of 2011 as a whole, the unemployment rate is estimated to average out to be 3.4%.

Concluding Remarks

Given the sovereign debt crisis in Europe and a slowing US economy, the Hong Kong economy will continue to be slow in the current quarter.  Domestic demand is the only driver popping up growth.  This pattern of growth is not sustainable.  Hong Kong needs a more robust external trading environment, but without a resolution of the European debt crisis and more supportive policies in the US, the global economy will remain weak.

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 Q4 HK Macroeconomic Forecast

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