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Inflation rising as Hong Kong looks to grow 6% this year

Govt revises target from 5-6%, but inflation hits 2.5% for first nine months

IN HONG KONG

HONG Kong’s economy is tipped to grow by 6 per cent this year as the city continues to enjoy strong domestic demand and low unemployment, but inflation has hit levels not seen since the 1997 handover.

‘The momentum for economic growth has become more obvious and significant,’ acting government economist Helen Chan announced yesterday, unveiling a revised GDP forecast of 6 per cent for 2007.

The government had previously forecast a rate of between 5 to 6 per cent. In the third quarter of 2007, GDP was up 6.2 per cent in real terms over a year earlier. It marks the 16th consecutive quarter of economic growth in the city.

However, the increase was just 1.7 per cent compared with the previous quarter, marking a small slowdown in the rate. Although domestic demand was strong, exports were seen to suffer amid a slowdown in the US economy.

Private consumption grew 9.7 per cent in real terms in the third quarter, buoyed by a strong labour market and rising household income.

Unemployment in the third quarter was 4.1 per cent, the lowest since mid-1998. Wages also increased by 2.9 per cent during the same period.

Inflation, however, continued its ascent, hitting 2.5 per cent in the first nine months after netting out the effects of a rates concession and public rental waiver introduced in February as part of Budget giveaways.

‘Inflation continued to creep up,’ Ms Chan said. ‘Inflation is not too high but we have to monitor the situation closely.’ The rate for 2007 as a whole is expected to be 2.7 per cent, she said (again after netting out the rates/rental effect).

She added: ‘I don’t think it’s a great problem. The current inflation rate is still quite a modest one.’

Hong Kong is facing a food price hike, partly due to a global trend but also because of its heavy reliance on the mainland for imports. Prices of certain foodstuffs – most notably meat and cooking oil – have surged in China in recent months. The headline inflation rate is expected to go up further in the fourth quarter.

Total exports were up 6.4 per cent in real terms in the third quarter compared with a year earlier. However on a seasonally adjusted quarter-to-quarter comparison, total exports of goods decreased slightly by 0.2 per cent in real terms during the period.

Policy-makers will be watching further developments in the US economy closely, Ms Chan stressed, with Hong Kong relying on the US market for 13 per cent of its exports. China now accounts for 49 per cent of the city’s exports.

‘In a way we have felt the pinch of a slowdown in the US economy,’ Ms Chan explained. ‘In the near term we are cautiously optimistic about the export outlook.’

She stressed: ‘Of course, we have to keep a close eye on changes in the external environment.’

Exports in services were, by contrast, up by 12.3 per cent in real terms during the third quarter, which the government says reflects a strong rise in inbound tourism and the city’s vibrant financial market activities.

Hong Kong’s stock market has been on a rollercoaster ride over the past few weeks, pushing through the 30,000 barrier before suffering sharp corrections. On Friday the benchmark Hang Seng Index closed at 27,614.43, down 1136 points or 3.95 per cent.

 

Source: Business Times 17 Nov 07

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