HONG KONG: The Hong Kong economy has reached the end of a V-shape recovery and where it is heading next largely depends on US consumers' demand and Beijing's monetary policy, economists at DBS Bank said.

The bank projects that the city's gross domestic product shrank by 2.4 percent this year, less than its previous estimate of 6.5 percent, supported by the recovery of the global economy, improved retail sales, low interest rates and ample liquid funds.

"Hong Kong's economy has stepped onto a firm track of recovery; the worst is behind us," said Chris Leung, a senior economist of the bank, at a press briefing yesterday.

The forecast is more optimistic than a 3.1 percent decrease projected by the University of Hong Kong, and a contraction of between 3.5 and 4.5 percent predicated by the Hong Kong SAR government.

The city's economy has contracted since financial markets collapsed in September last year.

Leung said the pace of expansion will be tepid - the small but highly trade-reliant economy is not likely to make big gains.

"I don't see an obvious rebound in the export sector over the last year," he said.

A foreseeable recovery, however, may not necessarily translate into improved quality of life for the city's residents, Leung warned.

The widening gap between essential expenses, such as properties, and household incomes will put Hong Kong people, especially those of middle class, under financial pressure.

The entire Asian property market rebounded sharply this year, while Hong Kong property pricing is even more upwardly accelerated, he suggested.

"The growth in property prices far outpaces working people's salary; middle-class households will shoulder all the financial burdens," he predicted.

DBS also upgraded GDP growth on the mainland to 8 percent this year and 9 percent next year, making it the latest financial institution offering a revised forecast for the mainland economy.

The projection is roughly in line with forecasts reported earlier this week by the Chinese Academy of Social Sciences (CASS).

The government's think tank said the mainland economy is likely to expand by 8.3 per cent this year and possibly hit 9 per cent growth next year. "If the world financial crisis does not worsen next year and China avoids major natural disasters, the nation's GDP growth could reach 9 per cent in 2010," it said.

The report also said there would not be "marked inflation", which has been a major concern, given the country's expansionary fiscal and monetary policies.

With demand still lagging and excess production capacity also a problem, the consumer price index is likely to rise by 3 per cent in 2010, the academy said.

(HK Edition 10/14/2009 page4)