The Federation of Hong Kong Industries expects the city's exports-driven GDP to have surged by 7.5 per cent last year, but it has expressed worries that economic growth will be hit by continued high global oil prices and increasingly protectionist US and EU markets. The federation expects the local economy to expand by a more modest 5 per cent to 5.5 per cent this year, with growth in exports to slow slightly to just below 10 per cent from an estimated 11.2 per cent in 2005. 'Falling oil prices appear unlikely this year, and this will keep the cost of raw materials like plastics and other byproducts high, so we have to be a little careful,' federation chairman Kenneth Ting Woo-shou said. He also said unexpected increases in US interest rates would affect the optimistic outlook. Deputy chairman Stanley Lau Chin-ho said that factories on the mainland were enjoying less of a cost advantage with higher costs of raw materials, electricity and labour. Price pressure from buyers is also squeezing margins. Fellow deputy chairman Cliff Sun Kai-lit said Hong Kong manufacturers operating in the region need to adopt strategies to offset higher production costs. The federation will continue to urge the government to increase tax incentives for companies investing in research and development as well as design in Hong Kong.