The Hong Kong government has raised its growth forecast for the whole of 2010 to 5-6 percent from 4-5 percent, after the local economy expanded a better-than-estimated 6.5 percent in the second quarter, benefiting from robust growth momentum in the mainland and other Asian economies.

The second-quarter reading eased from the 8 percent growth in the first quarter but still beat a market consensus of 6.3 percent.

On a seasonally adjusted quarter-to-quarter comparison, real GDP rose by 1.4 percent in the second quarter, demonstrating a sustained momentum of economic growth, the government said.

"The second quarter witnessed a broad-based and balanced growth of the Hong Kong economy, thanks to strong exports and domestic demand," Financial Secretary John Tsang told a press briefing for the GDP release Friday.

Merchandise exports registered a 20.1 percent growth in the second quarter from a year earlier, fuelled by robust intra-regional trade in Asia as well as sustained comeback of import demand from the US.

"Global economic recovery remained on track in the second quarter, with the mainland and other Asian economies taking the lead," said Tsang.

Likewise, service exports remained vibrant in the second quarter with a 16.9 percent increase year-on-year. The tourism industry benefited from a large influx of visitors from the mainland, whereas vigorous intra-regional trade and commercial activities lent firm support to the trade-related and business service exports.

"The export sector overall fared well in the second quarter, with the only exception found in the financial service exports with just moderate growth as the European sovereign debt crisis dragged down the market," Tsang said.

Private consumption expenditures rose by 4.6 percent year-on-year in the second quarter, with a distinct 15.2 percent increase seen in the overall investment spending.

"The domestic sector remained resilient in the second quarter, indicating a firm consumer sentiment," Tsang said.

Despite the overall bright economic landscape, the asset market witnessed sharp volatility in the second quarter with a great deal of sell-offs recorded in April and May.

Inflationary pressure also notched up in the second quarter, with the underlying consumer price inflation rising to 1.5 percent.

Real GDP expanded by 7.2 percent for the first half of 2010, but the economic outlook for the second half has turned more uncertain.

"There are a lot of challenges ahead. For one thing, the European debt crisis remains a problem, which probably will cloud the picture of the global economy for the next several months and even next year. For another, the US economy has shown signs of slowdown," Tsang said, suggesting that growth during the second half is likely to be more moderate than in the first half.

Also, inflationary pressure may edge up further in the coming months.

"Consumer prices may rise further in line with the continually rising property prices," Tsang said.

China Daily

(HK Edition 08/14/2010 page2)