HONG KONG: Brighter prospects for both external and domestic demand, coupled with an expected rebound in private investment, have made investment banks like Morgan Stanley and economists more optimistic about the outlook for the city's economy.

The new-found optimism is sending economists from both the government and the private sector scrambling to upgrade their growth forecasts.

In the latest of a series of forecast upgrades by big houses, Morgan Stanley yesterday raised their Hong Kong growth forecast for this year to 4.5 percent from their previous 3.8 percent estimate, citing a brighter outlook for exports.

The fourth-quarter growth rate was much higher than its forecast of a 1.4 percent gain, Morgan Stanley said.

The city's GDP rebounded 2.6 percent in the fourth quarter of last year from a year ago after contracting for four consecutive quarters.

Goldman Sachs is more optimistic about the outlook for the city's economy, forecasting a growth rate of 5.8 percent.

"Given the accommodative monetary conditions and fiscal policies, we are still confident that Hong Kong's GDP will grow 5.8 percent and 5.3 percent in 2010 and 2011, respectively," the investment bank said in a note.

"We raised the GDP forecast for this year as the Hong Kong economy witnessed a recovery last year," Denise Yam, an economist at the US bank, said in a report.

Economists in the government share comparable optimism, forecasting up to 5 percent growth.

The Hong Kong government forecasts a 4 to 5 percent expansion in its economy this year, Financial Secretary John Tsang said in his third budget address yesterday.

"The government's forecast is reasonable and achievable," said Chris Leung, senior economist for Greater China at DBS Bank (Hong Kong), who himself offered a growth forecast of 5.5 percent.

He cited several positive factors for his higher-than-average estimate, including a positive contribution from exports against a negative contribution last year, stable growth in local consumption and strong growth in private investment.

"Investment could be a dark horse this year," he suggested, explaining that businesses are expected to expand robustly this year, since they have turned more optimistic about the global economic outlook.

Exports could rebound 10 percent this year after a slump last year, he said.

Hong Kong's exports fell 12.6 percent last year, the worst performance ever for the sector.

The government expects to post double-digit growth in exports during the first quarter, partly because of a low comparable base last year and stronger trading activities in the region, a government source said on Wednesday.

Paul Tang, chief economist at Bank of East Asia, is also bullish about the economic performance this year, projecting a growth rate of 5 percent.

He forecasts 8 percent growth in exports and a 5.5 percent increase in domestic consumption this year, while seeing an expansion in investment as well.

(HK Edition 02/26/2010 page2)