But pace of rebound expected to be moderate in H2

The economist team at the University of Hong Kong (HKU) has raised its growth forecast for the city's economy this year to 5.8 percent from the 4.5 to 5 percent estimate made previously, after strong growth in the first half of the year.

The team estimates that the local economy is going to sustain a growth rate of 4.5 percent in the second half of 2010.

In tandem with the global economic recovery, the first half of this year saw Hong Kong's economy grow by 7.2 percent, with the first quarter recording an 8.2 percent increase in real GDP and the second quarter posting an estimated growth rate of 6.2 percent, according to estimates by the Hong Kong Institute of Economics and Business Strategy at the HKU.

"All the output loss due to the financial crisis was already recouped by the second quarter," said Richard Wong, Professor of Economics at the HKU.

The output growth is expected to continue but at a moderate rate. "GDP will continue to grow, but the global economic deceleration around the corner will deflate the growth somehow," said Alan Siu, Executive Director of the Hong Kong Institute of Economics and Business Strategy at the HKU, adding that exports and domestic private consumption are the two main drivers behind the GDP growth.

Total exports of goods surged by 21.6 percent in the first quarter, up from a negative growth rate of 2.8 percent in the fourth quarter last year. But the growth momentum is expected to moderate for the rest of this year due to weaker demand in the wake of the sovereign debt crisis. "Banks in the euro zone are in deep water, struggling against insolvency. They are banking on the people there to bail them out," Siu said, "and that is going to hurt consumers' willingness and ability to buy."

Retail sales are projected to grow at double-digit rates for the rest of this year, spurred by a robust growth of visitor arrivals, particularly those from the mainland. "The vibrant economy of the mainland provides the underpinning of sustained growth in the local economy," Wong said.

The unemployment rate is forecast to fluctuate around 4.5 percent for the rest of this year, but the current quarter is likely to hear some good news from the labor market with the number of jobs rising by 17,000. More employment, said Siu, provides a probable explanation for the 6.5 percent growth of private consumption spending in the first quarter of this year.

However, the economic outlook of Hong Kong remains unclear, Siu said. Apart from the imminent global economic slowdown, mounting inflationary pressure is likely to pressure the local economy for the next couple of months.

Despite a mild inflation rate in the first half of this year, the next several months will see inflationary pressure picking up and climb to 3 percent by year-end, fueled by a likely renminbi appreciation and rising rental rates. "The prices of consumer goods - particularly food - will be pushed higher by the more expensive yuan. But renminbi appreciation, I believe, will be just moderate," Siu said, adding that 2010 is by whatever gauge a better year than 2009, which saw the Hong Kong economy contract by 2.8 percent.

China Daily

(HK Edition 07/08/2010 page3)