HONG KONG economists are divided on the outlook for the economy in the second half of the year. Forecasts for growth in gross domestic product (GDP) range from the Government's optimistic 5.5 per cent to one stock broking firm's suggestion that a slump in the services trade will lead to growth of three per cent. The Bank of East Asia head of economic research, Raymond Kwok Hung-fai, said the territory would enjoy moderate second-half growth. 'Private consumption and retail figures are starting to rebound,' he said. 'Tourist arrivals and spending are picking up. Japanese, who make up about 20 per cent of total visitor spending and are high per capita spenders, are registering very stable growth.' Mr Kwok said this would have a positive effect on retail spending and help to maintain growth. The Bank of East Asia expected United States' interest rates to peak this year, giving some relief to the beleaguered stock and property markets in the territory. Private consumption numbers would benefit through the wealth effect; when people felt wealthy in terms of increasing or high-asset values, they tended to spend. 'We expect private consumption to rebound,' Mr Kwok said. First-half figures were unavailable, but the last available private consumption figure, for the last quarter of 1994, showed a dismal 4.9 per cent growth. Private consumption grew by 12 per cent in the first quarter of last year and by 7.1 per cent and 5.6 per cent in the following two quarters. 'The economy will be a bit better in the second half,' said Connie Leung, senior economist with HSBC Asset Management. The management arm of the HSBC group has forecast growth of five per cent for the year. 'The second half should be more active, even though there is downside risk due to a possible rise in US interest rates,' she said. Interest rate rises hit private consumption directly by increasing the incentive to save and indirectly through falling stock and property values. Ms Leung said good economic news from China would benefit Hong Kong in the second half. Chinese retail prices were up 16 per cent year on year in the first four months of the year against a high of 24 per cent in the final quarter of last year. 'We should continue to see an improvement in that area in the second half with the continued tight monetary control and agricultural and state sector reform,' she said. China's economic growth would begin to taper off under these controls and there would be some negative impact on Hong Kong but activity on the airport project would help offset it, Ms Leung said. Hong Kong's economic growth slowed last year and during the first quarter of this year, largely because of a slump in private consumption. Much of this was related to the wealth effect. HSBC does not predict a quick turnaround in the second half but it sees some reason for optimism in the stock and property markets. Jim Walker, chief economist at Credit Lyonnais Securities, said the group had been bearish on Hong Kong's prospects for economic growth for the past few years. It forecasted 4.5 per cent growth for the year, compared with HSBC Asset Management which was going for five per cent. China held the key to Hong Kong's poor economic performance, Mr Walker said. Triangular debt, problems at the state-owned enterprises and embedded inflation meant a soft landing for the economy was unlikely, he said. Credit Lyonnais was forecasting 6.5 per cent growth for the mainland this year, its lowest since the Tiananmen Square uprising in 1989. It is forecasting Hong Kong's inflation will fall to about 8.5 per cent during the year, leading to interest rates rising in real terms. 'Asset prices in general will be strongly hit. Rates have been negative for a long time and it will really put the stock and property markets under pressure,' Mr Walker said. Other economists believe growth will be far lower than the Government's 5.5 per cent forecast. At least one big stockbroking house is telling clients Hong Kong will grow by only three per cent for the year. 'The big question is the current account surplus in 1995,' said the group's chief economist. Hong Kong has historically run a deficit on the merchandise side of the current account (trade in goods) but has run surpluses on the services side (trade in services such as banking and tourism).