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10 July, 2001 Hong Kong Economic Forecasts |
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Third Quarter, 2001 Highlights Thanks to an expected recovery of exports to the US, Hong Kong's growth prospects should improve in the fourth quarter of this year. Supported by the aggressive interest rate cuts since January and the generous tax rebates that will be handed out to tax payers in the third quarter, US consumers are likely to resume their shopping spree in the coming months. Given the sharp depletion of US inventories in the first half of this year, a rebound of consumer spending will prompt US companies to increase imports to replenish stock. Hong Kong's exports to the US are, therefore, expected to increase strongly starting from the fourth quarter of this year. Domestically, consumer and business spending should also improve gradually in the coming months, as the impact of the 275-basis-point cuts in local interest rates in the first half of this year filters through the economy. The rebound of exports and stronger domestic spending should help to boost real GDP growth from 2.5% in the first quarter of this year to 4.2% in the fourth quarter, bringing the full year average growth to 2.5% in 2001.
ECONOMIC OUTLOOK As a result of sluggish exports and weaker consumer spending, Hong Kong's real GDP growth slowed to 2.5% in the first quarter of 2001, down from 6.9% in the fourth quarter of 2000. Export growth fell to 4.2% from 13.2% during the period due to a downturn of the US economy, which accounted for 23% of Hong Kong's exports and supported a large part of the local trade with China. Meanwhile, private consumption weakened as falling asset prices and rising unemployment rate have dampened consumer confidence. Given the plunge of exports and subdued consumer spending in recent months, Hong Kong's economic slowdown is likely to continue in the second and third quarter of this year, bringing full year average growth down to 2.5% from 10.5% in 2000. Growth prospects, however, should improve beginning the fourth quarter of this year thanks to stronger exports to the US. Supported by this year's aggressive fiscal and monetary easing, the US economy would likely turn around in the second half of 2001. According to a tax cut plan passed by the Congress in May, US households will receive US$ 38 billion tax rebates in the third quarter and save US$ 7.4 billion tax payments in the second half due to the reduction of income tax rates. Meanwhile, the Federal Reserve is expected to continue its monetary easing and cut its federal funds target rate further by another 50 basis points to 3.25% in the coming months. With larger disposable income thanks to the tax rebates and lower debt service burden made possible by the interest rate cuts, US consumers are likely to resume their shopping spree in the coming months. Given the sharp depletion of US inventories in the first half of this year, a rebound of consumer spending will prompt US companies to increase imports to replenish stock. Hong Kong's exports to the US are, therefore, expected to increase strongly starting from the fourth quarter of this year. Domestically, as the impact of sharp interest rate cuts since January this year gradually filters through the economy, consumer and business spending should improve in the coming months. With mortgage lending rate fallen to its lowest level in 30 years, turnover in the local residential property market had begun to pick up moderately in the second quarter. Continued record-low mortgage rate should help to stabilize property prices, which in turn will strengthen consumer sentiment. Supported by a gradual recovery of consumer confidence, private consumption is likely to grow more strongly later this year. On the back of a rebound of exports and stronger domestic spending, real GDP growth should pick up to 4.2% in the fourth quarter of this year and further to 4.5% in 2002. The recovery of the economy should help to lower unemployment rate from the current 4.6% to 4.5% by year-end and further down to 4% next year. With stronger domestic demand, deflation is also expected to ease from the current 1.5% to 0.5% by year-end. In 2002, consumer prices would increase modestly by 0.7%.
Hong Kong Economic Forecasts is available for retrieval in the following Citibank internal systems: CitiWeb, EMLink, Hong Kong e-BM Website, and Hong Kong GCIB Website. It is also available for viewing at the Economic Forum subsite of hktdc.com. For soft copies of this report, customers are advised to contact your Account Manager. The forecasts in this report are for indication only. While the figures contained in this report have been obtained from sources which we believe to be reliable, we can make no guarantee as to either the accuracy or the completeness of the figures. CITIBANK, N. A. Jason Kwok Joe Lo Ellen Cheuk Alice Chan |
