Hong Kong's economy in 2010, rebounds beyond expectations

As an international financial and trade hub backed by one of the most robust economies in the world, Hong Kong's economy recovered vigorously in 2010, outperforming most forecasts made earlier, with sound GDP growth and low unemployment rate.

After a revised 2.6 percent down of GDP in 2009 from a year earlier, Hong Kong is expected to record a year-on-year increase of 6.5 percent on GDP in 2010, said the government of the Hong Kong Special Administrative Region.

Experts believe that Hong Kong's powerful growth was mainly fueled by big push from the mainland, its own domestic demand and fairly loose monetary environment.

UNEXPECTED STRONG REBOUND

In fact, the situation still remained unclear as the year started. In February, Financial Secretary John Tsang described the city's economic prospects as "cautiously optimistic" in his annual budget speech, forecasting a GDP growth of 4 percent to 5 percent for the year.

However, as the year is drawing to an end, Hong Kong turns out to have fared pretty well, with its GDP up 10.1 percent, 6.5 percent and 9.5 percent respectively in the first three quarters, according to the figure announced by the government's Census and Statistics Department.

Latest reports from Bank of America Merrill Lynch and Hang Seng Bank nailed down the city's annual growth rate on 6.5 percent, while Bank of China (Hong Kong) Limited (BOCHK) and International Monetary Funds provided a more optimist forecast of 6.8 percent and 6.75 percent each.

HSBC even boldly upgraded its forecast to a 7 percent increase.

Strong rebound could also be felt in labor market. Government data showed that Hong Kong's total employment increased for the sixth consecutive month in November, reaching an all-time high of 3,541,800, surpassing the previous peak of 3,537,900 in early 2008.

Meanwhile its seasonal adjusted unemployment dropped to 4.1 percent for the three months to November, with a total of 143,000 people unemployed, almost the lowest number over the past two years.

Hong Kong has fully recovered from its 2009's retreat, with its economic performances expected to beat expectations made earlier this year, said Tsang while addressing the city's legislative committee in late October.

MOMENTUM

Experts believe the momentum for Hong Kong's growth is mainly supported by the Chinese mainland and its own domestic market.

T. J. Bond, chief economist of Merrill Lynch, Asia Pacific, perceived Hong Kong, whose basic dynamics are the same in 2011 that Merrill Lynch saw over the past five years, as an economy becoming very tied into the mainland growth.

"This is actually above-trend growth for the second year in a row for the economy," Bond said.

Donna Kwok, an economist of HSBC, thought that Hong Kong's economy is powering ahead, fueled by loose monetary conditions and a spending and investment spill-over effect.

As services industry takes significant part in Hong Kong's GDP, the growth in private spending, service exports and trade turn out to be quite important for the city.

"Business and household spending held their ground through the turbulence of 2010, enabling domestic demand to establish its own roots," she said.

In mid December, Standard and Poor's, a renowned credit rating agency, upgraded Hong Kong's long-term foreign currency and local-currency ratings from "AA+" to "AAA", the highest rating ever assigned to the city.

S&P attributed the upgrade to Hong Kong's large net external creditor position, the government's accumulated fiscal reserves, and the above-average growth potential for a high-income economy.

S&P also noted strong growth on the Chinese mainland and the deepening economic and financial links between Hong Kong and the mainland have boosted Hong Kong's short- and long-term growth prospects.

LOOKING AHEAD

Looking forward, Kwok from HSBC thought Hong Kong's economy will continue to roar, as the recent growth drivers are expected to hold firmly in place over the coming year, though the city remains vulnerable to a renewed U.S./EU-led global slowdown in demand or major global financial market disruptions.

Thus, HSBC has raised its 2011 GDP growth forecast for Hong Kong to a consensus-busting 5.2 percent, higher than the 4.6 percent expected by the markets.

According to BOCHK, Hong Kong's merchandise exports were expected to grow by 10.5 percent next year and services exports will grow by 8.5 percent.

Further improvement in domestic demand is also expected, with private consumption continuing to be boosted by rising employment and pay as well as inflation and asset boom, according to a BOCHK report.

BOCHK forecast Hong Kong's GDP growth to reach 4.8 percent in 2011, slightly higher than the long-term average of 4 percent for the past two decades.

However, Kwok also warned that inflation may come with the robust recovery. "Not only are consumer prices closing the gap with last year's upturn in private residential property prices, but strong aggregate demand is simultaneously stoking inflationary pressures."

Kwok believed that, coupled with low interest rates, U.S. dollar weakness, another tidal wave of post-QE2 capital and higher global food prices, Hong Kong's policy-makers are facing a dilemma they can't side step.

HSBC expects the city's CPI to rise to 4.4 percent in 2011, from this year's 2.3 percent.
(Source:xinhua)