Good news on growth for city's finances

Economists say lower inflation will improve Hong Kong's GDP, but cooling measures imposed on property market should stay

PUBLISHED : Saturday, 17 August, 2013, 12:00am
UPDATED : Saturday, 17 August, 2013, 5:38am

The latest economic estimates for the city show signs of optimism, with government economists predicting lower inflation for this year than earlier forecast.

Inflation-adjusted growth is now expected to be 2.5 to 3.5 per cent, revised from the original forecast of 1.5 to 3.5 per cent.

We are of the view that Hong Kong's economic growth this year is likely to lie within the upper half of the previously announced range forecast

The full-year inflation forecast was also lowered from 4.2 per cent to 4 per cent, the government announced yesterday.

The updated figures also show a cooler property market. Principal economist Andrew Au Sik-hung, however, saw the need for stabilising measures to continue as the overall market remained volatile.

The mainland was still outperforming other major economies and should stay a stabilising force in the region, Au noted.

That, together with Hong Kong's "ongoing infrastructure works, the robust expansion of inbound tourism and budget measures, should provide support for the local economy", he said.

"We are of the view that Hong Kong's economic growth this year is likely to lie within the upper half of the previously announced range forecast."

The Hong Kong economy grew 3.3 per cent in the second quarter, up from 2.9 per cent in the first three months.

On a seasonally adjusted quarter-to-quarter basis, real gross domestic product growth rose 0.8 per cent, compared with 0.2 per cent in the first quarter.

Terence Chong Tai-leung, an associate professor of economics at Chinese University, said the latest revision of the economic forecast would make this year's economic growth on a par with that of previous years.

"Export performance has shown improvement, especially to the United States and Europe," he said. "And the city remains close to full employment."

However, Au warned of "notable uncertainties in the external environment". For example, "the future direction of the US monetary policy has emerged as a new source of uncertainty", he said.

"Given the underlying structural problems, the growth momentum of the euro area is likely to remain weak and uneven."

The city has been introducing property curbs to cool the market, including a double stamp duty from February. As a result, residential prices are looking at slower growth. Prices rose only 1 per cent during the second quarter, four percentage points lower than in the first three months.

Au warned that since overall home prices in June were 40 per cent higher than the previous peak, recorded in 1997, home affordability remained low.

"The risk of a housing bubble is still quite high, so it's important for the stabilisation measures to be in place to ensure the housing market will develop in a healthy and stable way," he said.