***********************************************************
The Government released today (November 11) the Third Quarter Economic Report 2011, together with the preliminary figures on Gross Domestic Product (GDP) for the third quarter of 2011.
The Government Economist, Mrs Helen Chan, described the economic situation in the third quarter of 2011 and provided the latest GDP and price forecasts for the year.
Main points
* The Hong Kong economy grew by 4.3 per cent in real terms in the third quarter of 2011 over a year earlier. Though broadly on a par with the growth trend over the past ten years, it represented a further moderation from the 5.3 per cent growth in the second quarter. The growth moderation was mainly caused by a sharp fall-off in exports towards the quarter end amid an increasingly austere global economic environment. The domestic sector nevertheless displayed remarkable resilience throughout the quarter, thereby rendering a strong cushion to overall economic performance. On a seasonally adjusted quarter-to-quarter basis, GDP still expanded slightly by 0.1 per cent in real terms in the third quarter, after a 0.4 per cent decline in the second quarter.
* Total exports of goods slackened to a modest year-on-year decline of 2.2 per cent in real terms in the third quarter. Exports to the US and EU markets further decreased, with the second round effects of their sluggish final demand also increasingly evident across many Asian markets. The ensuing deceleration in regional production resulted in a notable fall-off in Hong Kong's raw material exports to Asia, thereby exacerbating further the weakness in overall export performance.
* Exports of services were nevertheless resilient, expanding at a solid pace of 6.6 per cent year-on-year in real terms. Exports of travel services maintained double-digit growth on the back of vibrant inbound tourism. Exports of financial and business services continued to see appreciable growth, despite heightened volatilities in the global financial markets during the quarter. Exports of transportation and trade-related services however suffered more from slowing regional trade flows.
* Domestic demand held up remarkably well and remained the key growth driver in the third quarter. Private consumption expenditure grew robustly, by 8.8 per cent in real terms over a year earlier, under the support of rising incomes and job growth. Overall investment spending picked up to a double-digit growth at 10.2 per cent in real terms, with strong machinery and equipment acquisition and infrastructure construction offsetting the slack in private construction activities.
* The labour market showed broad-based improvements during the quarter. Total employment rose successively to new record highs, pushing the seasonally adjusted unemployment rate down to 3.2 per cent in the third quarter, the lowest in 13 years. With the labour market in a state of full employment, employment earnings showed notable growth across many sectors and occupation categories. Average employment earnings of full-time employees went up markedly by 8.1 per cent in the third quarter over a year earlier. Those in the lowest decile group enjoyed an even higher income growth of 13.1 per cent, reflecting an additional boost from the implementation of the statutory minimum wage.
* The local stock market underwent a sharp correction during the quarter, as global economic sentiment was severely dented by the deepening eurozone debt crisis and mounting concern over the increasingly shaky global economic recovery. The local property market also turned quieter, with residential flat prices and transaction volume both recording declines.
* The external environment has deteriorated substantially since the last forecast review in mid-August. The negative impacts on the global economy caused by the Eurozone sovereign debt crisis and the ensuing global financial turbulence intensified towards the end of the third quarter, and are likely to remain pronounced in the period ahead. While the Eurozone debt problem will remain a key threat to the global economic outlook, the weakness in the US economy also warrants concern. In Asia, the region as a whole has stayed relatively resilient, but growth has also moderated as a result of weakening external demand. Against the headwinds from such an austere global economic environment, Hong Kong's export outlook in the fourth quarter is bleak.
* Domestic demand as well as inbound tourism are however expected to hold up better. This, coupled with continued hectic pace in infrastructure investment, should render some cushion against the expected setback in external trade in the fourth quarter. Having regard to the actual outturn of a 5.6 per cent GDP growth in the first three quarters of 2011, and with due cognisance of a still-lacklustre export performance in the fourth quarter, the economy is now forecast to grow by 5 per cent for 2011 as a whole, the lower boundary of the earlier range forecast of 5 to 6 per cent in the August round.
* As part of a region-wide phenomenon, underlying consumer price inflation has kept increasing so far this year, reaching 6.1 per cent in the third quarter, and averaging 4.9 per cent in the first nine months. The pace of rising inflation nevertheless moderated towards the end of the third quarter, thanks to a slight easing-back in food inflation after an almost uninterrupted rise over the past year.
* The continued easing-back in global food and commodity prices in recent months is a positive development, which in the course of time should help alleviate imported inflation. However, with the lagged effects from the earlier surge in market rentals still feeding through, inflation is likely to edge up slightly further in the near term before peaking out. Judging from the actual outturn so far and the latest trend in global food prices, the forecast rates of headline and underlying consumer price inflation for 2011 as a whole are marked down slightly to 5.2 per cent and 5.3 per cent respectively, from 5.4 per cent and 5.5 per cent in the August round.
Details
GDP
According to preliminary data on the GDP released today by the Census and Statistics Department, real GDP grew by 4.3 per cent in real terms in the third quarter of 2011 over a year earlier, moderated further from the 5.3 per cent growth in the second quarter (revised upwards from the earlier estimate of 5.1 per cent). Taking the first three quarters of 2011 together, real GDP expanded by 5.6 per cent over a year earlier. On a seasonally adjusted quarter-to-quarter comparison, real GDP showed a slight increase of 0.1 per cent in the third quarter, after a mild contraction of 0.4 per cent in the second quarter (revised upwards from the earlier estimate of a 0.5 per cent decline) (Chart).
The latest figures on GDP and its major expenditure components up to the third quarter of 2011 are presented in Table 1. Developments in different segments of the economy in the third quarter of 2011 are described below.
External trade
Total exports of goods slackened further in the third quarter to a 2.2 per cent decline in real terms over a year earlier, from virtually zero growth in the second quarter. Exports to the US saw another quarter of noticeable decline, curtailed by the sluggish demand there. The decline in exports to the EU enlarged further, reflecting the sluggishness and weak sentiment in many EU member economies. Exports to a number of Asian markets, including the Mainland, also slowed, due to the fall-off in intra-regional exports and raw material intake which were closely tied to demand in the developed markets. Exports to Japan however showed some relative improvement, as the post-earthquake recovery proceeded. Exports to Taiwan and India maintained appreciable growth. In general, exports of consumer and capital goods to Asia held up relatively better, though not sufficient to make up for the lull in the developed markets. On a seasonally adjusted quarter-to-quarter comparison, total exports of goods were broadly unchanged in real terms in the third quarter.
Exports of services were more resilient, maintaining a solid growth of 6.6 per cent in real terms in the third quarter, following a 7.7 per cent growth in the second quarter. Exports of travel services provided the main growth impetus, thanks to vibrant inbound tourism. Exports of financial and business services had further appreciable growth, despite heightened global financial market volatility during the quarter. Exports of transportation and trade-related services (comprising mainly offshore trade activities) were however more significantly hit by the slowdown in global trade flows in the quarter. On a seasonally adjusted quarter-to-quarter basis, exports of services grew by 1.1 per cent in real terms in the third quarter.
Domestic sector
The domestic sector displayed remarkable strength throughout the third quarter, thereby rendering key support to overall economic performance. Local consumer sentiment held firm, thanks to further improvement in job and income conditions. Private consumption expenditure grew robustly further by 8.8 per cent in real terms in the third quarter over a year earlier, following 9.7 per cent growth in the second quarter. On a seasonally adjusted quarter-to-quarter basis, private consumption expenditure grew further by 1.1 per cent in real terms in the third quarter. Government consumption expenditure maintained modest growth at 1.7 per cent in real terms over a year earlier.
Overall investment spending picked up to a strong growth of 10.2 per cent in real terms in the third quarter over a year earlier, further to the 7.0 per cent growth in the second quarter. This was underpinned by a hectic expansion of machinery and equipment investment, by 26.4 per cent year-on-year. Overall building and construction expenditure was virtually unchanged from a year earlier in real terms in the third quarter, after the 5.4 per cent decline in the second quarter. Public sector works continued apace, thereby offsetting the shrinkage in private sector construction activity in the quarter.
The labour sector
The labour market showed broad-based and notable improvements, marked by hectic job creation following a period of above-trend economic growth over the past year or so. Total employment rose to successive record highs during the quarter, pushing the seasonally adjusted unemployment rate down to 3.2 per cent in the third quarter, the lowest in 13 years. The underemployment rate also inched down to 1.7 per cent in the third quarter from 1.8 per cent in the preceding quarter. In tandem with a relatively tight labour market, wages and earnings rose visibly further across all major sectors and occupation categories. Median household income surged by 11.1 per cent year-on-year in the third quarter, the fastest since 1997. Over the same period, average employment earnings of full-time employees went up markedly by 8.1 per cent over a year earlier. Those in the lowest decile group enjoyed an even higher income growth of 13.1 per cent, reflecting an additional boost from the implementation of the statutory minimum wage.
The asset markets
The local stock market experienced much volatility and underwent a sharp sell-off along with many major overseas markets during the third quarter. Global financial markets were in turmoil under the slackening global economic recovery and the escalating European debt crisis, and the consequential return of risk aversion and flight to safer assets pushed worldwide stock markets lower. The Hang Seng Index (HSI) shed 21.5 per cent from end-June to close at 17 592 points at end-September, 23.6 per cent lower than the level at end-2010.
The residential property market showed some consolidation in the third quarter, amid increased headwinds in the external environment and tighter mortgage loan terms offered by local banks. Overall flat prices fell by 2 per cent between June and September 2011, the first quarterly decline since the fourth quarter of 2008. Transactions in the third quarter plunged by 41 per cent over the preceding quarter, reflecting the more cautious market sentiment. Over the same period, flat rentals notched up by a slower rate of 2 per cent, while office and shop rentals rose by 6 per cent and 2 per cent respectively.
Prices
Consumer price inflation went up further in the third quarter under the influences of both local and external factors, although the pace of rising inflation showed some initial signs of slowing towards the end of the quarter amid a slight ease-back of food inflation. Domestically, the lagged effects from the earlier surge in private housing rentals continued to feed through, while wages also picked up visibly on the back of a tight labour market. On the external front, increase in import prices remained elevated owing to the earlier surge in global food and commodity prices. Headline consumer price inflation rose from 5.2 per cent in the second quarter to 6.4 per cent in the third quarter. Netting out the effects of the Government's relief measures, underlying consumer price inflation went up from 5 per cent to 6.1 per cent.
Latest GDP and price forecasts for 2011
The external environment has deteriorated substantially since the last forecast review in mid-August. The negative impacts on the global economy caused by the Eurozone sovereign debt crisis and the ensuing global financial turbulence have intensified towards the end of the third quarter, and are likely to remain pronounced in the period ahead. While the Eurozone debt problem will remain a key threat to the global economic outlook, the weakness in the US economy also warrants concern. In Asia, the region as a whole has stayed relatively resilient, but growth has also moderated as a result of weakening external demand. Against the headwinds from such an austere global economic environment, Hong Kong's export outlook in the fourth quarter is bleak.
Domestic demand as well as inbound tourism are however expected to hold up better. This, coupled with a continued hectic pace in infrastructure investment, should render some cushion against the expected setback in external trade in the fourth quarter. Having regard to the actual outturn of a 5.6 per cent GDP growth in the first three quarters of 2011, and with due cognisance of a still-lacklustre export performance in the fourth quarter, the economy is now forecast to grow by 5 per cent for 2011 as a whole, the lower boundary of the earlier range forecast of 5-6 per cent in the August round (Table 2). For reference, the latest forecasts by private sector analysts mostly range from 5 to 5.5 per cent, averaging at around 5.2 per cent.
On inflation outlook, the continued easing-back in global food and commodity prices in recent months is a positive development, which in the course of time should help alleviate imported inflation. However, with the lagged effects from the earlier surge in market rentals still feeding through, inflation is likely to edge up slightly further in the near term before peaking out. Judging from the actual outturn so far and the latest trend in global food prices, the forecast rates of headline and underlying consumer price inflation for 2011 as a whole are marked down slightly to 5.2 per cent and 5.3 per cent respectively, from 5.4 per cent and 5.5 per cent in the August round (Table 2).
The Third Quarter Economic Report 2011 is now available for online download, free of charge at www.hkeconomy.gov.hk/en/reports/index.htm. The print version is available for sale at $116 per issue, plus a postage charge. Users can purchase the print version online at the Government Bookstore at www.bookstore.gov.hk, or by calling the Publications Sales Unit of the Information Services Department at 2537 1910. The Report of the Gross Domestic Product, Third Quarter 2011, which contains the GDP figures up to the third quarter of 2011, is also available for online download, free of charge at the homepage of the Census and Statistics Department, www.censtatd.gov.hk.
Ends/Friday, November 11, 2011
Issued at HKT 16:36
NNNN
Windows Media format
Flash format
