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The Government released today (August 15) the Half-yearly Economic Report 2008, together with the preliminary figures on Gross Domestic Product for the second quarter of 2008.
The Government Economist, Mr K C Kwok, described the economic situation in the second quarter of 2008 and provided the latest GDP and price forecasts for the year.
Main points
* The Hong Kong economy grew moderately by 4.2% in the second quarter of 2008. This followed a strong 7.3% growth in the first quarter. The moderation after a prolonged period of robust economic expansion indicated that the headwinds from the slowing growth in the advanced economies and lingering financial market turbulence had increasingly posed a drag on the economic growth of the Asian region, including that of Hong Kong.
* Merchandise exports fell in June amidst the increasingly challenging external environment. But they grew moderately for the second quarter as a whole. Exports of services grew notably in the second quarter, yet the performance was not as sanguine as in the previous quarters. There was further expansion in offshore trade and inbound tourism, but the impact on financial service activities due to the ongoing turbulence in the global financial markets had become more evident.
* Domestic demand also showed a slower growth in the second quarter. The growth of consumption spending moderated after a long period of exceptionally strong performance. While the firm labour market remained a supportive factor, the stock market correction, rising inflation and dimmer global economic prospects had probably dented consumer sentiments. Investment spending expanded further despite the high base in the same quarter last year. The latest business survey results suggested that large business establishments were still generally positive about near-term business prospects.
* Labour market conditions remained firm in the second quarter. The seasonally adjusted unemployment rate stayed at 3.3%, the lowest in the past decade, and the underemployment rate was stable at 1.9%. Labour earnings and wages were on the rise.
* Inflationary pressure continued to trend upward in the second quarter, with headline consumer price inflation rising to 5.7%. The surge in food prices amidst the global food inflation contributed significantly to the recent pick-up in consumer price inflation. Pressure from the demand side after a prolonged period of economic expansion was also reflected in the faster increases in private housing rentals and, to a lesser extent, prices for other goods and services. Meanwhile, underlying consumer price inflation, after netting out the effects of one-off policy measures, also stood at 5.7%, the same as its headline counterpart in the second quarter. This was because the alleviation effect of the rates concession in the second quarter this year was offset by the similar measure implemented in the same quarter last year.
* The external environment facing Hong Kong would become increasingly challenging going forward, owing to the expected moderation in global economic growth, the lingering global financial turbulence and the negative effect on demand in Hong Kong's major markets because of high commodity prices. Rising inflation among the Asian economies is also posing a greater threat to economic prospects in the region. The macroeconomic adjustment measures in the Mainland economy also need to be watched closely.
* Domestic demand should likewise experience a slower pace of expansion in the remaining months of the year, as the growth in the external sector recedes. Nevertheless, the firm labour market conditions should continue to provide support to local consumption. As business confidence remains generally positive, there should also be further growth in investment spending.
* On the whole, the Hong Kong economy is expected to grow moderately further in the rest of 2008, at a rate more in line with the trend growth rate over the past decade. Taking into account the notable growth of 5.8% of the economy in the first half of the year, the GDP forecast for the year of 2008 as a whole is kept unchanged at 4-5%.
* Global food prices and international oil prices, while showing some signs of stabilisation lately, remain elevated. Thus inflationary pressure from the external front will continue to be felt in the coming months. The domestically generated inflationary pressure may also become more evident, especially in private housing rentals, after a prolonged period of rapid economic expansion. Yet the improvement in labour productivity and the expected moderation in the rate of economic growth in the period ahead should provide some alleviating effect. Taking into account the faster-than-expected increase in food prices in the first half of the year, the forecast rate of increase in the underlying Composite CPI for 2008 is revised upward from 4.5% in the May round to 5.5%. Nevertheless, the relief measures announced in the 2008-09 Budget and by the Chief Executive in mid-July would help to lower the headline inflation notably in the latter part of the year. The forecast headline inflation rate for 2008 is now put at 4.2%.
Detail
GDP
According to the preliminary figure on the Gross Domestic Product (GDP) released today by the Census and Statistics Department, GDP grew moderately by 4.2% in real terms in the second quarter of 2008 over a year earlier. This followed a strong 7.3% (upward revised from an earlier 7.1% estimate) growth in the first quarter. The moderation in growth reflected the strong headwinds from the slowing growth in the advanced economies and lingering financial market turbulence, which had increasingly posed a drag on the economic growth of the Asian region, including that of Hong Kong. On a seasonally adjusted quarter-to-quarter comparison, GDP fell by 1.4% in real terms in the second quarter. This was the first quarter-to-quarter decline since the second quarter of 2003. Yet this has to be viewed against the very strong performance in the first quarter (Chart).
The latest figures on GDP and its major expenditure components up to the second quarter of 2008 are presented in Table 1. Developments in different segments of the economy in the second quarter of 2008 are described below.
External trade
Total exports of goods grew moderately in the second quarter as a whole, amidst an increasingly challenging external economic environment. Total exports of goods grew by 4.4% in real terms in the second quarter over a year earlier. The slowdown was concentrated in the month of June. The demand from the Mainland and other emerging economies, which held firm during most of the second quarter, as well as the continued expansion in the EU economy, provided the major support. The earlier weakness of the US dollar, and hence the Hong Kong dollar, against other major currencies also helped to sustain the price competitiveness of Hong Kong's exports to such markets as the EU and some emerging market economies. On a seasonally adjusted quarter-to-quarter comparison, total exports of goods expanded further by 1.0% in real terms in the second quarter of 2008.
Exports of services grew further at a less robust pace of 7.1% in real terms in the second quarter over a year earlier. There was further expansion in offshore trade and inbound tourism, but the impact on financial service activities due to the ongoing turbulence in the global financial markets had become more evident. Exports of financial services grew less rapidly than in the preceding quarters, albeit still at a double-digit pace. On a seasonally adjusted quarter-to-quarter comparison, exports of services fell by 0.3% in the second quarter of 2008.
Domestic sector
Domestic demand continued to contribute to overall economic growth in the second quarter despite showing a slower growth. The growth of consumer spending moderated notably in the second quarter after a long period of exceptionally strong performance. While the firm labour market conditions constituted a supportive factor, the stock market correction, rising inflation, and dimmer global economic prospects began to weigh on consumer sentiments. Private consumption expenditure (PCE) rose by 3.1% in real terms in the second quarter over a year earlier. On a seasonally adjusted quarter-to-quarter comparison, private consumption expenditure fell by 1.6% in the second quarter.
Overall investment spending expanded further in the second quarter of 2008 despite the relative high base in the same quarter of last year. It rose by 4.3% in real terms in the second quarter over a year earlier. Machinery and equipment investment continued to rise solidly. Also, as suggested by the results of latest Quarterly Business Tendency Survey conducted by the Census and Statistics Department, large private sector business establishments in most economic sectors were still largely positive about the near-term economic prospects. However, building and construction activities in both private and public sectors reverted to declines in the second quarter. Taking altogether, overall expenditure on building and construction decreased by 1.7%.
The labour sector
Labour market conditions remained firm in the second quarter. The seasonally adjusted unemployment rate stayed at 3.3%, the lowest in the past decade, and the underemployment rate was stable at 1.9%. Labour earnings continued to register broad-based increase in the first quarter of 2008, though significant variations still existed across different economic sectors and occupations.
Prices
Consumer price inflation, in terms of the Composite CPI, rose further to an average of 5.7% in the second quarter. The sustained surge in food prices against the background of global food inflation was the main factor underlying the recent pick-up in the consumer price inflation. The pressure generated from the demand side, after several years of rapid expansion of the local economy, had also become increasingly visible. This is reflected in the faster increases in private housing rentals and, to a lesser extent, prices for other goods and services. The elevated energy prices, the gradual appreciation of the renminbi and the weak US dollar also added to the inflationary pressure. Meanwhile, underlying consumer price inflation, after netting out the effects of one-off policy measures, also stood at 5.7%, the same as its headline counterpart in the second quarter. This was because the alleviation effect of the rates concession in the second quarter this year was offset by the similar measure implemented in the same quarter last year. As to the GDP deflator, a smaller increase was recorded in the second quarter, largely reflecting the continued deterioration in the terms of trade.
Latest GDP and price forecasts for 2008
The external environment facing Hong Kong would become increasingly challenging going forward, owing to the expected moderation in global economic growth, the lingering global financial turbulence and the negative effect on demand in Hong Kong's major markets because of high commodity prices. Rising inflation among the Asian economies is also posing a greater threat to economic prospects in the region. The macroeconomic adjustment measures in the Mainland economy also need to be watched closely.
Domestic demand should likewise experience a slower pace of expansion in the remaining months of the year, as the growth in the external sector recedes. Nevertheless, the firm labour market conditions should continue to provide support to local consumption. As business confidence remains generally positive, there should also be further growth in investment spending.
On the whole, the Hong Kong economy is expected to grow moderately further in the rest of 2008, at a rate more in line with the trend growth rate over the past decade. Taking into account the notable growth of 5.8% of the economy in the first half of the year, the GDP forecast for the year of 2008 as a whole is kept unchanged at 4-5%.
As for inflation outlook, global food prices and international oil prices, while showing some signs of stabilisation lately, remain elevated. Thus inflationary pressure from the external front will continue to be felt in the coming months. The domestically generated inflationary pressure may also become more evident, especially in private housing rentals, after a prolonged period of rapid economic expansion. Yet the improvement in labour productivity and the expected moderation in the rate of economic growth in the period ahead should provide some alleviating effect. Taking into account the faster-than-expected increase in food prices in the first half of the year, the forecast rate of increase in the underlying Composite CPI for 2008 is revised upward from 4.5% in the May round to 5.5%. Nevertheless, the relief measures announced in the 2008-09 Budget and by the Chief Executive in mid-July would help to lower the headline inflation notably in the latter part of the year. The forecast headline inflation rate for 2008 as a whole is now put at 4.2%.
(The Half-yearly Economic Report 2008 is now available for online download, free of charge at http://www.hkeconomy.gov.hk/en/reports/index.htm. The Report of the Gross Domestic Product, Second Quarter 2008, which contains the GDP figures up to the second quarter of 2008, is also available for online download, free of charge at the homepage of the Census and Statistics Department (http://www.censtatd.gov.hk). Users can purchase the print version of these two publications online at the Government Bookstore at http://www.bookstore.gov.hk, or by calling the Publications Sales Unit of the Information Services Department at 2537 1910.
The print version of the two reports is available for sale at $70 and $47 per issue respectively (15% discount offered if purchased on-line), plus postage charge.)
Ends/Friday, August 15, 2008
Issued at HKT 16:40
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