Economic growth in Hong Kong is expected to slow in the second half of this year after healthy exports and domestic spending helped second-quarter gross domestic product expand by a better than expected 6.5 per cent year on year. The encouraging results prompted a one-percentage point rise in the official full-year growth forecast to between 5 per cent and 6 per cent, roughly in line with the 5.5 per cent average growth predicted by many economists. On a quarterly basis, GDP rose 1.4 per cent, the fifth consecutive quarter of growth. Hong Kong's turnaround tracks that of major markets, including the mainland, Singapore, South Korea and Germany, which all reported growth in the second quarter. 'The outlook for the second half is for the economy to gradually settle back to a growth path that is more or less in line with the past growth trend. Basically, we are still looking at rather solid growth momentum, even though we probably will be seeing some more deceleration in export growth towards the end of the year along with a weaker recovery in the global economy,' government economist Helen Chan said. Despite some signs of optimism, Hong Kong is still far from shrugging off its recessionary woes. Financial Secretary John Tsang Chun-wah warned of an uncertain external environment, with Europe's sovereign debt crisis and the pace of economic recovery in the United States slowing down. 'We are at a crucial juncture of our economic recovery and it is important that we prepare now for the challenges ahead,' he said. Many key economic indicators, including public and private spending as well as external trade, recorded slower growth in the second quarter. There are also questions about how real and sustainable the recovery is once government stimulus action, which helped Hong Kong emerge relatively unscathed from the global downturn, is withdrawn. Unemployment worsened slightly to 4.6 per cent. Consumer prices rose at a 2.6 per cent annual pace, up from 1.9 per cent in the first quarter. Without the effect of various government measures, underlying inflation increased 1.5 per cent. The full-year inflation target remains unchanged at 2.3 per cent, with underlying inflation at 1.5 per cent. Controlling inflation is seen as key to a sustainable recovery, as interest rate rises are often used to prevent consumer and asset prices from rising too much or too quickly. 'Overall, we expect domestic demand growth to weaken, but only a little, over the rest of the year. Exports will probably fare worse. Growth of goods exports halved last quarter to 4.2 per cent quarter on quarter, but even this rate looks unsustainable, particularly given concerns about the state of global demand,' Mark Williams, a senior China economist with research house Capital Economics, said in a report. 'Overall though, the economy seems to be piloting a steady course out of the turbulence of the last couple of years. We are less confident than the government about household spending, but certainly do not expect a collapse. GDP growth is on course to return to the potential growth rate of 4 per cent or so towards the end of the year.' Capital Economics expects full-year GDP growth of 6.5 per cent.