Barclays Capital lowers its forecast on Hong Kong's GDP growth from 5.5 percent to 4.5 percent this year, citing the worsening external economy.

Peng Wensheng, director and head of China research of Barclays Capitals, said the slowing external demand, unsettled financial market and moderating growth of the mainland economy will weaken the economic growth of the city.

In anticipation of the prolonged slowdown of the global economy, Peng downsized the SAR's GDP growth forecast from 5 percent to 4 percent in 2009.

However, he believed that the fall in import product price will partly mitigate the mounting inflationary pressure, leading to the local consumer price index (CPI) decline by 4.4 percent in the fourth quarter from 6.3 percent in July.

"The CPI is expected to dip to 4 percent next year, but the depreciating greenback and fluctuation of oil price will badly affect local consumption," he said.

Peng also noted that the economic downturn will not pose any tangible impact on local property sector. "Compared with the housing bubble in 1997, flat price, interest rate and income now stand at a healthy level and the property price is unlikely to fall sharply," Peng added.

Commenting on the mainland economy, Peng expected its CPI to drop to 3.6 percent in the fourth quarter from 5 percent in the third quarter. He said the index will further slide to 2.3 percent in the first quarter next year.

Worse still, the mainland's account will run into deficit because of the excessive spending on infrastructure and agriculture sectors. The deficit will be as much as 0.5 percent of the GDP this year and will grow to 1.5 percent in 2009, he predicted.

Regarding the A-share market, Peng said that the market is about to hit the bottom, but mainland investors remain cautious toward volatile external market and diminishing profitability of enterprises.

In view of the decrease in export and unfavorable market condition, Peng lowered mainland GDP growth from 9.5 percent to 9 percent in 2009, while GDP growth for 2008 will stand at 10 percent.

(HK Edition 09/26/2008 page2)