Hong Kong's report card makes for optimistic reading
Just four years into the post-Sars recovery, Hong Kong is already starting to resemble the 1997 bubble economy, say some economists.
Fewer than 128,000 people are without jobs, asset prices are on the rise, interest rates are trending down and domestic consumption is reaping the rewards of growing household wealth, thanks to the stock market. Not surprisingly, newly minted car owners are an increasingly common sight, while investors eye the property market amid rosy consumer sentiment.
The strength of the economy also means government coffers will almost certainly be overflowing this fiscal year amid higher tax revenue on healthy corporate profits and rising wages.
Although many economists believe the ripple effects of slower economic growth in the US and the widening credit crisis will dampen Hong Kong's prospects in 2008, so far, the city's economic report card for this year is impressive. Real economic growth for the first nine months stood at 6.1 per cent compared with 6.8 per cent for the whole year in 2006. The latest official full-year forecast for 2007 is 6 per cent. Trade remains strong, with total export growth up 9.6 per cent in the first 10 months of this year versus 9.4 per cent for the whole of 2006.
The number of tourist arrivals looks set to top the almost 25.3 million visitors in 2006, due largely to the continued influx of mainland tourists as well as visitors from around the region. Celebrations marking the 10th anniversary of Hong Kong's handover in July as well as the busy calendar of major conventions and trade exhibitions helped boost arrival numbers. The Hong Kong Tourism Board has set a target of 26.4 million arrivals for 2007.
In November, the steadily falling jobless rate improved to 3.6 per cent, a level many economists believe indicates the city is at or very near full employment. The relatively tight labour market and brighter job prospects helped prop up overall consumer sentiment as retail sales surged 11.2 per cent in the first three quarters of this year, up from 7.3 per cent in the whole of 2006. However, inflation has been creeping up even though government concessions have kept it artificially low at just 1.7 per cent over the first 10 months of 2007.
Food and wage inflation has been particularly pronounced this year. Hong Kong imports much of its fresh produce and has been on the receiving end of escalating pork and vegetable prices on the mainland as well as the more valuable mainland currency, which makes imports more expensive.
Companies, especially in highly competitive sectors such as finance, real estate and retail, have also had to bump up wages to attract and retain employees, given the active labour market and relatively high staff turnover.
Concerns over inflation have also put Hong Kong's US-dollar currency peg firmly in the spotlight since the link effectively means the government has to track interest rate movements in the US, leaving it with few tools to combat inflation.
