HONG Kong's economic growth will rise to 5.6 per cent this year, with inflation creeping up slightly to nine per cent, says a research report of China Resources (Holdings). The mainland-backed conglomerate's report predicts a steady growth for the territory's economy due to strong fundamentals, recovering world economy and China's deepening reforms. It projects the value of imports and exports will reach $2.5 trillion this year, up 17 per cent over last year's figure. According to the report, the US, Britain, Japan and Europe will see a pick-up in the recovery of their economies, which will benefit exports from Hong Kong. As China's economy continues to growth rapidly, Hong Kong's role as a gateway for foreign investments to the mainland will be further strengthened, it says. The report forecasts that Hong Kong's exports to China will increase by more than 20 per cent this year. The unified exchange rate of the Chinese currency will create a competitive environment for business enterprises and stimulate exports from China, it says. Hong Kong, as an international entrepot, will benefit from the rising value of exports from the mainland, the report says. It also notes that public expenditure of the Hong Kong Government will increase by 33 per cent this year. Unemployment will stay at a low level and salary rises will be between nine and 12 per cent, which should fuel growth in private consumption. However, the report warns that instability in China's economy, such as inflationary pressure and the yuan's fluctuations, will pose threats to Hong Kong growth. Sino-US conflicts on trade, property and textile quotas will be a worry as well. The report says improvements in the US economy may fuel a rise in interest rates and strengthen the US currency, which will hit Hong Kong stock and property markets and weaken the territory's competitiveness in exports. It adds that the US economic recovery is still slow and is unlikely to see an increase in interest rates before the second quarter of the year. ''If the increase [in interest rates] is within a half percentage point, the actual effect on Hong Kong will not be material,'' it says. ''A stronger US currency will have an adverse effect on Hong Kong's exports, but the effect may be alleviated or even offset by the softening of the yuan.'' The report also points to the Sino-British conflicts on the future of Hong Kong, which will delay the construction of infrastructure projects and affect Hong Kong's economic and trade development.