Hong Kong's export growth dropped sharply to 6.6% on weak US demand in November 2007, the slowest in 14 months. The US weakness is seemingly spilling over to other parts of the world. We have revised downward the estimated total export growth for the full year of 2007 to 9.1% yoy and 7.2% for 2008 on dimmer outlook.

CPI soared to a nine-and-a-half year high of 3.4% yoy in November 2007, after rising 3.2% in October 2007, as the two heavily weighted items - food and housing rentals continued to rise. CPI inflation was mild at 1.9% yoy in the first 11 months of 2007, in line with our estimate of 2% for the full year of 2007.

On the back of falling interest rates, a weakening USD and high food prices in the mainland, CPI inflation is likely to trend higher to 3.5% in 2008, taking into consideration another round of property rate concessions in Q1 2008.

Hong Kong's unemployment rate continued to edge down to a nine-and-a-half year low of 3.6% in November 2007. Job creation also regained momentum adding 13,400 new jobs to market. In the near-term, the momentum of job creation is expected to stay, underpinned by the spending boom during the Christmas and New Year holidays.

At this stage, we remain upbeat on our economic outlook, which should help drive down unemployment rates to 4.1% and 3.8% respectively in 2007 and 2008 respectively.

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