Yr-on-yr Q1 growth estimate raised to 5.4% from 5.0%

Economists at the University of Hong Kong (HKU) are optimistic about the sustainability of the recovery in the local economy because of strong domestic demand, despite previous warnings of a double-dip recession by many, including Chief Executive Donald Tsang.

"The tepid economic recovery that started in the second half of last year will strengthen in the first half of this year, with real GDP forecast to grow at close to its trend rate of growth," economists at the Hong Kong Institute of Economics and Business Strategy, a research center at the HKU, said in a research report released Wednesday.

Reflecting their optimism, the economists have raised their year-on-year growth estimate for the real gross domestic product (GDP) in the first quarter of this year to 5.4 percent from the 5.0 percent gain estimated in January, based on a stronger pickup in domestic demand.

The growth is primarily fueled by domestic demand, with external demand still relatively weak, given the deep recession engulfing the developed world, the economists note.

Meanwhile, they forecast a 4.1 percent year-on-year growth in real GDP in the second quarter of this year.

"The growth momentum is picking up. It is estimated that Hong Kong's real GDP will grow by 4.8 percent in the first half of 2010. The primary driver is domestic demand, with consumption and investment spending providing the growth impetus," said Richard Wong, professor of Economics at HKU.

The economists' optimism counters the pessimism of Chief Executive Donald Tsang, who earlier warned of a double-dip downturn in the middle of the year because of continuing uncertainties the global economy faces.

The Hong Kong economy started to recover at a snail's pace in the second half of 2009, with real GDP growing by 0.2 percent from the second half of 2008.

Consumption spending is estimated to account for 2.8 percentage points of the overall, more robust 4.1 percent GDP growth estimated for the second quarter, Professor Wong said.

The strong domestic demand is a reflection of the steady global economic recovery and the strong growth on the mainland, as well as the low interest-rate environment.

The job market is projected to improve further with the unemployment rate forecast to drop to 4.5 percent in the second quarter from the estimated 4.6 percent in the first quarter.

Meanwhile, inflationary pressure is building up because of the weak US dollar and the booming property market leading to higher rental rates.

However, "the upward pressure is forecast to be mild in the first half of this year, with the composite CPI projected to increase by 1.5 percent in the second quarter," said Dr Alan Siu, executive director of the Hong Kong Institution of Economics and Business Strategy at HKU.

Given the continued improvement in the job market, strong economic growth in the mainland and vibrant asset markets, the recovery of private consumption spending that started in the second half of last year is projected to continue, the report suggests.

The growth in private consumption spending is estimated at 5.2 percent for the first quarter and 4.3 percent in the second quarter. The slowdown in the growth of consumption in the second quarter is attributed to a relatively strong base of comparison a year ago.

(HK Edition 04/01/2010 page2)