Hong Kong's total exports are set to rise 12% this year surpassing a previous forecast of 7%, the Trade Development Council says. It follows a 15% rise in total exports during the first half of 2004, mainly driven by a 16% expansion of re-exports.

Total exports amounted to $926.3 billion, expanding in major markets like the Mainland (19%), the EU (14%) and the US (5%).

The council's Chief Economist Edward Leung said weakness in the US dollar, enabling Hong Kong to compete more vigorously with other manufacturers, and the world economic upturn, which is helping to boost trade across the globe, are factors for the higher than anticipated growth.

Mr Leung expects Hong Kong exports will continue to fare well for the rest of this year and next, although the current upturn in the world economy may have peaked in the first half of this year.

Mainland economy grows at slower pace

Mr Leung said: "Despite Chinese government measures to slow down their economy to prevent overheating, it continued to grow, though at a slower pace. As consumer spending and exports remain solid, a hard landing tends to be unlikely."

In Japan, economic recovery facilitated by surging exports to the Mainland has also beaten expectations.

The US economy is expected to remain solid, although growth may be hindered by pre-emptive interest rate increases and the ending of tax cuts. Rising employment will encourage consumer spending and in turn bode well for Hong Kong exports, Mr Leung said.

An economic recovery in the EU is finally underway, though the pace remains slow, with the exception of the UK. EU enlargement will not have any immediate impact.

However, he warned that if crude oil prices surge further, overseas consumer confidence and business sentiment will be damaged, raising the possibility of a sharp slowdown of the world economy.

"According to the International Energy Agency, a US$10 rise in oil prices will subtract 0.5% from world GDP," he said.

Star Performers: electronics and jewellery exports

In the first six months, electronics exports grew 24% and jewellery 19%. They are expected to be star performers in Hong Kong's merchandise exports. Watches and clocks, and clothing exports rose 8% and 6%.

On clothing, sales will also benefit from the global economic recovery. But Hong Kong manufacturers need to prepare for the worldwide lifting of quotas on clothing next year when competition, particularly from low-cost producers, will become sharper.

Hong Kong toy exporters should see an improvement in shipments, particularly to the US, where retailers need to replenish dwindling stocks.