Analysts paint rosier picture of economy

PUBLISHED : Thursday, 06 October, 2005, 12:00am
UPDATED : Thursday, 06 October, 2005, 12:00am

Fears of drastic slowdown in markets may be unfounded amid recovery

Fears of a drastic economic slowdown in Hong Kong in the second half of this year may be unfounded but sustained record-high oil prices and further interest rate rises will dampen recovery efforts, the University of Hong Kong has warned.

'Despite surging oil prices and tightening of monetary conditions, the expected slowdown in global economic growth has turned out to be mild,' said Richard Wong Yue-chim, director of the university's Apec Study Centre, in its latest quarterly forecast.

Alan Siu Kai-fat, the centre's executive director, stressed that global oil prices were likely to remain high and would knock between 1.5 and 2 percentage points from Hong Kong's real gross domestic product next year if they reached US$80 a barrel and stayed there for at least six months.

'This may be an unlikely scenario but Hong Kong should still be concerned,' he said.

The city will also experience the brunt of higher fuel costs if the US continues to combat inflationary pressure with more interest rate increases.

Mr Siu said if Hong Kong followed further jumps in US rates totalling 125 basis points over the next year, local property prices would fall by 6 to 10 per cent.

The university is forecasting Hong Kong's real economic growth to moderate to 6.4 per cent this year from 8.2 per cent last year. The third-quarter GDP projection has been revised up to 6.4 per cent from 5.6 per cent, while the fourth quarter's stands at 6 per cent.

The government is sticking to its 4.5 per cent to 5.5 per cent estimate for the whole year.

'Our forecast is on the high side, but we are pretty confident in our projection for the third quarter due to the revival in private spending and consumer sentiment. If we follow the government forecast, it would imply a contraction in the economy, which we currently do not see,' Mr Siu said.

The relatively rosy forecast mainly hinges on expectations that private consumption, retail sales, imports of goods, investment in equipment and machinery, visitor arrivals and the labour market will all continue to grow. Specifically, savings and cash reserves built up during the Sars-related economic downturn were now being spent, Mr Siu said.

The jobless rate should also improve to 5.4 per cent in the fourth quarter, with the creation of 200,000 jobs since the Sars outbreak in 2003. The university expects unemployment to stand at 5.7 per cent for the whole year. Wages could also rise by 3 or 4 per cent this year, Mr Siu added.

Higher import prices, oil prices and rents will largely account for mild inflation, estimated to rise to 1.6 per cent in the third quarter of this year and 1.7 per cent in the fourth quarter. The full-year projection is 1.1 per cent.

Consumer prices dipped by 0.4 per cent last year.