But Q4 growth expected to slow

The Hong Kong government raised its full-year GDP growth forecast Friday to 6.5 percent from 5-6 percent after it reported a better-than-expected 6.8 percent rise in the third quarter on the back of strong exports and consumption figures.

Real GDP grew by 6.8 percent in the third quarter compared with the same period a year earlier. It was also up on the 6.5 percent growth seen in the second quarter. On a seasonally adjusted basis, real GDP expanded by 0.7 percentage point in the third quarter compared with the previous quarter, the sixth consecutive quarterly gain.

"Given the strong growth so far this year, even allowing for some possible deceleration in the fourth quarter, economic growth in 2010 should exceed the forecast of 5-6 percent we put out earlier this year," said government economist Helen Chan after the latest quarterly figures were released.

Despite the brighter overall forecast, Chan added that the fourth quarter is likely to see growth moderating. Among other reasons, the anticipated slowdown in the advanced economies as the effects of the stimulus and inventory restocking fade out, may drag on Hong Kong's export growth, she said.

The export sector maintained its strong momentum in the third quarter. Exports of goods surged 20.8 percent year-on-year, supported by robust demand from the mainland and other Asian markets. Exports of services continued to benefit from vibrant inbound tourism and registered a 14 percent year-on-year rise.

Irina Fan, senior economist at Hang Seng Bank, meanwhile, said buoyant local spending contributed to the better-than-expected performance in the third quarter.

Riding on improving employment and growing incomes, private consumption expenditure picked up further in the third quarter at 5.7 percent year-on-year, following a 4.4 percent rise in the second quarter.

At the same time, total employment in the third quarter climbed to its highest level since early 2009, driving the unemployment rate down to 4.2 percent. However, further improvement is largely unlikely, as the current unemployment rate of 4.2 percent is "quite low already", Chan said.

However, wages have failed to keep pace with the level of economic growth. The property market has also shown clear signs of reviving after turning quieter in September on government measures to rein in the overheating housing market. And the situation seems unlikely to improve in the months ahead, as the second round of quantitative easing just announced by the US last week is likely to make things worse by encouraging a higher inflow of money into Asia, Fan noted.

Harm may also be done to the economy by the city's property market, as rising rents and housing prices will eventually translate into higher consumer prices. "Inflation is likely to pick up further if the uptrend of the property market continues," said Chan.

Underlying inflation expanded to 2 percent in the third quarter from 1.5 percent in the previous quarter. For the year as a whole, underlying inflation is now forecast at 1.7 percent, up from the August forecast of 1.5 percent.

China Daily

(HK Edition 11/13/2010 page2)