The Hong Kong economy is expected to continue to recover from the downturn since the second half of 2001. The output growth is projected to be positive in the second and third quarter this year. Reversing the declining trend, the rebound of the economy will be relatively modest.
This is according to the High Frequency Macroeconomic Forecast carried by the APEC Study Center of The University of Hong Kong, with its system developed in collaboration with Nobel Laureate Professor Lawrence Klein of the Wharton School of Business of the University of Pennsylvania.
The real GDP is estimated to increase by 0.9% in the second quarter of 2002 on a year-on-year basis, rebounded from the 0.9% drop in the first quarter. In the current quarter, real GDP is forecasted to grow by an annual rate of 1.5%.
This series of quarterly forecasts commissioned by the Better Hong Kong Foundation aims to provide the best possible quantitative understanding of the macro-economic environment in Hong Kong.
The Foundation’s Chief Executive Mr. George Yuen said, “It’s gratifying to see a marginal increase of 0.9% in the second quarter 2002, as an early sign of a slow economic recovery. As we enter in the second half of the year, we expect a 1.5% growth in real GDP. However, the strong growth of the US economy at 5.6% in the first quarter is expected to moderate. The economic outlook is clouded by conflicting signals, but on balance the US economy is unlikely to contract in the current quarter.”
Forecast Highlights
Professor Richard Wong and Dr. Alan Siu of the APEC Study Centre of the University of Hong Kong presented the following highlights:
- Private consumption spending dropped by 0.6% in the first quarter of 2002, and is expected to fall by 0.2% in the second quarter, but starts to grow by 0.1% in the third quarter of 2002, on a year-on-year basis.
- In April, the volume of retail sales shrunk by 1.6% compared to a year ago, but is expected to pick up in the next half of the current year.
- The number of visitor arrivals maintained a double-digit growth for fourth consecutive months at 17.4% year-on-year in April. The number of visitors from the Mainland China rose sharply by 49.9% in April compared to a year ago. As a result, 37.5% of visitors are now from the Mainland, as opposed to 27.0% last year. Hopefully this could liven up the retail business further. The exports of services are projected to grow by 5.9% and 5.3% in the second and third quarters of 2002 respectively.
- The recovery of Hong Kong economy is reflected by moderate increase in the imports of goods. Telecommunication, sound recording, office and automatic data processing machines grew the fastest in April. The imports of goods are estimated to increase by 0.5% and 0.4% in the second and third quarter of 2002 respectively.
- The US economy rebounded strongly in the first quarter of this year, growing by 5.6%. Re-exports to the United States grew by 7.8% in April, while re-exports to mainland China rose by 8.6%, both on a year-on-year basis. Re-exports of goods is expected to grow by 4.3% and 4.7% in the second and third quarters of 2002.
- Domestic exports continued to contract, dropping by 12.7% in the first quarter of 2002. In April, the fall in total domestic exports was 17%, with domestic exports to the Mainland China, Unites States and United Kingdom, declined by 9.6%, 20.8% and 17.7% respectively on a year-on-year basis. These three major destinations of Hong Kong domestic exports of goods accounted for 60% of the total drop. A further decline in domestic exports is expected, but more slowly due to the weakening of the US dollar in recent months which would help to boost Hong Kong’s competitiveness. The drop in domestic exports is expected to decelerate to -10.6% in the second quarter and -7.2% in the third quarter of 2002.
- Given the uncertain business environment, investment spending on machinery and equipment shrunk by 25.0% in the first quarter of 2002 on an annual basis. It is forecasted to contract by 14.4% and 19.4% further in the second and the third quarter of 2002.
- Investment in land and construction dropped by 3.7% in the first quarter of 2002. The slowdown is expected to persist. It is forecasted to decline by 5.1% in the second quarter and by 4.1% in the third quarter of 2002 on a year-on-year basis.
Deflation pressure is expected to continue. In May, the composite CPI declined by 3.1%, with about 1 percentage point of the fall accounted by the one-off drop in utility rates Durable goods prices registered the second largest decrease at 7.2%, while the price index for clothing and footwear increased by 2.3%. The deflation rate is forecasted to be 3.1% in the second quarter of 2002 and 3.7% in the third quarter of 2002.
- The provisional seasonally adjusted unemployment rate in March to May climbed to a historic high level of 7.4%. The median duration of unemployment also increased from 82 days in fourth quarter of 2001 to 87 days in the first quarter of 2002.
- Reflecting the continued slack in the property market, unemployment is still concentrated in the construction sector, with unemployment rate at 15.7% in first quarter of 2002. The current high level is expected to continue. The unemployment rate is forecasted to be 7.4% in the second quarter of 2002 and 7.7% in the third quarter of 2002.
Echoing the presentation by Professor Richard Wong and Dr. Alan Siu of the APEC Study Centre of the University of Hong Kong Mr. Yuen concluded: “Buoyed by the still robust consumer spending in the United States, Hong Kong can still rely on its total exports of goods and services as its engine of growth, pulling the economy to grow at an expected rate of 1.5% in the current quarter. Given the deflationary and high unemployment environment, private domestic spending will continue to remain weak. In our recent visit to the Pearl River Delta region, we believe its vast development potential and substantial growth in double digits should provide greater business opportunities for Hong Kong companies. This further reasserts the importance of an even earlier economic integration of Hong Kong and the Pearl River Delta, contributing to the economic growth in the region.
The High Frequency Macroeconomic Forecast for the third quarter of 2002 will be announced in early October. The quarterly forecasts can be accessed at http://www.hku.hk/apec/cqm/ and http://www.betterhongkong.org.
For enquiries, please contact Mr. Kim Wan of The Better Hong Kong Foundation at 2861-2622 or by fax at 2861-3361.
End The Better Hong Kong Foundation is a privately funded, non-profit, non-political organization, formed by leading Hong Kong business people to reinforce Hong Kong’s role as the leading regional, financial, shipping, trading, communication and technology center. The Foundation also serves to enhance greater international understanding between East and West by facilitating communications between Hong Kong, China and the international community.