Hong Kong Economic Outlook
The APEC Study Centre of the University of Hong Kong (HKU) today (July 6, 2006) released its quarterly Hong Kong Macroeconomic Forecast. According to its High Frequency Macroeconomic Forecast, real GDP growth in the second quarter of 2006 is forecast to be 6.7% on a year-on-year basis.
The growth estimate of 6.7% is an upward revision of the 5.5% forecast released on April 6, 2006, reflecting the strong growth in the first quarter of 2006. In the third quarter of 2006, real GDP growth is forecast to moderate to 5.9% when compared with the same period last year.
Professor Y.C. Richard Wong, Director of the Centre, said that "Reflecting the projected slowdown in the global economy brought on by tighter monetary conditions, Hong Kong's real GDP is expected to grow by 7.5% in the first half of this year, and slow down to 5.6% in the second half. The full-year growth estimate is around 6.5%, dropping from the 7.3% annual growth recorded last year."
"The output growth in the third quarter is forecast to be 5.9%. The growth is broad-based, with private consumption spending and gross investment are estimated contributing 1.7 and 2.3 percentage point, respectively, to the overall growth, while net exports of goods and services contributing 1.9 percentage point. Despite the weaker external environment, external demand will still remain as an important growth driver for Hong Kong in the current quarter." said Dr Alan Siu, Executive Director of the Centre.
Forecast Highlights
The forecast details are in Table 1 and Table 2, and the forecasts of selected monthly indicators are in Table 3. All growth rates reported are on a year-on-year basis. (please refer to Picture 1, Picture 2 and Picture 3 below.)
Chart 1(please refer to Picture 7 below)
- Underpinned by continued improvement in the labour market, and buoyed by a positive economic outlook, private consumption spending grew strongly by 4.5% in the first quarter of 2006, with spending in food, consumer goods and services growing by 5.5%, 3.7% and 5.8%, respectively. Consumption spending is expected to continue to grow but at a more moderate rate. It is forecast to grow by 3.9% in the second quarter and further moderate to 3.4% in the third quarter.
- The volume of retail sales in April 2006 recorded a year-on-year increase of 7.9%, with an across-the-board improvement amongst all categories. Department stores, durable goods and clothing, footwear and allied products growth rates were more apparent at 14.4%, 10.0% and 9.1% respectively. The volume of retail sales is forecast to grow by 7.7% in the second quarter of 2006, and creep up to 9.9% in the third quarter.
- Total export of goods has enjoyed double-digit growth for almost 4 years, with a high growth of 14.4% in the first quarter of 2006. The growth in total exports is expected to slow down due to a weaker external environment, with growth in Q2 forecast to be 7.8% and a further weakening to 7.2% in the third quarter.
- Domestic Exports recorded a spectacular growth of 44.4% in the first quarter of 2006, due to the 45.1% growth in machinery and transport equipment and 52.7% growth in miscellaneous manufacture articles. These two main categories accounted for 80% of total value of domestic exports. Domestic exports is forecast to grow by 26.0% and 11.1% in the second and third quarters, respectively.
- Re-exports grew by 12.8% in the first quarter of 2006. The rising competitiveness of ports in Shenzhen and a weaker external demand are two factors leading to a slowdown in the growth of Hong Kong's re-exports. Re-exports of goods is estimated to grow by 7.0% in both the second quarter and the third quarter.
- Service exports grew by 8.9% in the first quarter of 2006. Visitor arrivals have been growing steadily. Tourism continued to have good performance with the number of visitor arrivals growing by 7.3% in May 2006. The new opening of the Wetland Park and the upcoming Ngong Ping Skyrail, along with other theme parks in Hong Kong, will further promote tourism related sectors. Service exports is forecast to grow by 7.0% and 6.8% in the second and third quarters of 2006, respectively.
- Import of goods grew by 14.0% in the first quarter, due to the 15.9% strong growth in retained imports of goods. The growth of imports of goods is expected to be 7.2% in the second quarter and 6.9% in the third quarter of 2006.
- Import of services rose by 4.8% in the first quarter. Outbound tourism continues to be vibrant. Service imports is forecast to grow by 7.5% and 6.7% in the second and third quarters, respectively.
- The trade balance, as measured by the net exports of goods and services, is estimated to be 14.8% of GDP in the first quarter. It is forecast to be 14.8% of GDP in the second quarter of 2006, and expand to 19.6% of GDP in the current quarter.
- Gross fixed investment rose by 8.5% in the first quarter of 2006. It is expected to grow by 5.9% in the second quarter and 10.2% in the third quarter.
- Investment in land and construction went down by 11.3% in the first quarter of 2006. Construction related investment will remain weak. The investment in land and construction is forecast to drop by 13.0% in the second quarter and by 14.7% in the third quarter.
- Investment spending in machinery, equipment and computer software increased by 23.3% in the first quarter of 2006. It is estimated to grow by 16.7% in the second quarter and 24.2% in the current quarter.
Chart 2(please refer to Picture 8 below)
- Inflation, as measured by the year-on-year percentage change of the Composite CPI, grew by 1.6% in the first quarter, rising from the 1.3% increase in the fourth quarter of last year. Pulled up by increasing rentals, the consumer inflation rate is forecast to pick up to 1.9% in the second quarter and moderate to 1.7% in the current quarter.
Chart 3 (please refer to Picture 9 below)
- The provisional seasonally adjusted unemployment rate dropped further to 4.9% in the three months average ending in May 2006 from its previous estimate of 5.1% for the three months ending in April 2006. The median duration of unemployment for all industries dropped to 74 days which is the lowest in the first quarter period since 1996. The unemployment rate is forecast to be 4.9% in the second quarter of 2006, and improve further to 4.7% in the current quarter.
Concluding Remarks
Further monetary tightening is expected, with the Federal Fund Rate projected for increasing further, thus dragging down global economic growth. Despite a weakening in the external environment, Hong Kong's economy is forecast to continue to grow in the second half of this year due to robust growth in domestic demand. For the whole year, Hong Kong's real GDP is estimated to grow by 6.5%, with the consumer inflation rate rising to 2% by year-end.
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 HKU Foundation for Educational Development and Research. The Steering Committee is chaired by Dr Chow Yei-Ching, Chairman & Managing Director of Chevalier International Holdings Ltd, with Mr Michael Leung, Executive Chairman of Onwel Group, as Deputy Chairman. Both Dr Chow and Mr Leung are members of the Board of Directors of the HKU Foundation.
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. Our quarterly forecasts can be accessed at http://www.hku.hk/apec/
For media enquiries, please contact Elsie Leung of HKU's External Relations Office at 2859 2600.
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