Hong Kong's economic upturn continued well into the third quarter, as GDP grew 7.2% in real terms over a year earlier. Government Economist Kwok Kwok-chuen says the economy is on track to reach the forecast 7.5% growth for the full year.

"We haven't released any number for fourth quarter growth, but since we say our full-year forecast is 7.5%, and you have the first three numbers, you know what the estimate would be: roughly from 4% to 5%," Mr Kwok said at an afternoon press briefing.

He described a slowdown in the fourth quarter as "inevitable and healthy".

On target: Government Economist Kwok Kwok-chuen says fourth-quarter growth will still be good. While a slowdown is expected in the second half of the yar, the whole-year forecast remains at 7.5%. "We're confident we can reach that," he said.

He also cautioned against looking at the 12.1% growth figure for the second quarter too much. It was, he said, an exceptional figure owing to the previous year's quarter - during which SARS devastated the economy.

"You shouldn't measure against it," he said. "If the economy could attain 4% to 5% growth, Hong Kong is doing quite well."

He noted that in the years leading up to the handover in 1997, when Hong Kong was booming, property prices were rising fast and the stockmarket was climbing, the average annual growth rate was in the range of 5% to 5.5%.

"For a mature market, a growth rate of 5% is very strong," he said.

Uncertainties surrounding global economy recede

There are external factors that could have an impact on Hong Kong's growth, although some of the uncertainties surrounding the global economy seemed to have receded somewhat lately.

"Crude oil prices have receded; that will take off pressure," Mr Kwok said.

He noted there are increasingly clearer indications that the US interest rate hikes will proceed at a measured pace, and the global economy appears to be better prepared for adjustments to the current interest rate up-cycle.

The weakening of the US dollar will help boost Hong Kong's exports. It is also helping to drive international funds into Hong Kong, leading to lower Hong Kong dollar interest rates.

Renminbi interest rate hikes won't derail growth momentum

Recent mild increases in the renminbi interest rates are not expected to derail the Mainland's growth momentum.

"People were worried about a hard landing in the Chinese economy. The good news is they haven't had one," Mr Kwok said.

What's more, Mainland officials have announced that social security investment funds and Mainland immigrants may be able to invest funds in Hong Kong. Although the implementation of such programmes may occur in phases, Mr Kwok noted that financial markets are efficient at reflecting future policies into current prices. This would boost consumer and corporate confidence.

Spending to continue rising as confidence returns

In the domestic sector, both consumer and investment expenditure are poised for further growth as the economic upturn continues. A more active property market and an improved employment situation bode well, he said.

Local consumer spending held firm, as employment conditions improved and sentiment remained generally positive. Private consumption expenditure grew 5.1% in real terms in the third quarter over a year earlier.

Labour market conditions continued to improve. The seasonally adjusted unemployment rate fell further to a 2?-year low of 6.8% in the third quarter (and further to a 32-month low of 6.7% in August to October), from 6.9% in the second quarter. Total employment maintained a notable growth of 2.7% in the third quarter of 2004 over a year earlier. Vacancies surged across most sectors in June.

Job growth faster than number of new job seekers

"New job growth is faster than the number of people entering the labour force," Mr Kwok said. "Hong Kong has created more than 100,000 jobs - we cannot underestimate that when we have only 200,000 unemployed."

Businesses are spending more as their confidence increases. Overall investment spending grew further 4.9% in real terms in the third quarter over a year earlier. Spending on machinery, equipment and computer software continued to surge, and such spending should remain intensive, as companies continue to reinstate their productive capacity to cater for anticipated expansion in sales and production.

This more than offsets the continued lull in construction activity upon the completion or winding down of a number of building and infrastructure projects in the earlier period. Construction activities are expected to pick up upon a more active property market.

Deflation ends - despite drop in forecast

The 68-month long deflation that started in November 1998 ended in July 2004. For the third quarter as a whole, the Composite CPI rose an average of 0.8% over a year earlier, reversing the 0.9% decline in the second quarter.

As consumer spending rises, the retailers' pricing power seems to be returning. The rise in import prices since late 2003 is also passing through to the retail price level. The pace of upturn in the CPI is however still being held back by the earlier fall-off in housing rentals.

"There was a dramatic fall in income rents," in the post-SARS wake, Mr Kwok noted. Although the price of food, clothing, footwear and other items in the index were moving up, rents drag the index down, he said. This is in part because tenants generally sign two-year leases, so while the property market is looking up, rents will not rise until the leases expire.

The rate of change in the Composite CPI for 2004 as a whole is now forecast at -0.3%, he says, down marginally from the forecast of zero change put out in August. This was a minor technical revision, he explained, to take account of the actual outturn of a 0.6% decline in the first 10 months.

External trade in goods, services flourishes

External trade also flourished in the third quarter, as global demand stayed generally strong across many regions, and as the Mainland economy sustained strong growth momentum.

Goods exports surged 15.3% in real terms in the third quarter over a year earlier, the ninth consecutive quarter of double-digit growth. Services exports, too, were strong, increasing 10.3% over a year earlier.

Inbound tourism is still resilient and offshore trade is sustaining strong growth momentum.

Reports available for sale

The Third Quarter Economic Report 2004 can now be purchased online by clicking here, www.statisticalbookstore.gov.hk/desc_eng.htm, or by calling the Publications Sales Section of the Information Services Department at 2537 1910. Both the hard and soft copies of the report are available for sale at $80 a copy, with a postage charge for the hard copy.

The GDP figures up to the third quarter of 2004 are published in the Report of the Gross Domestic Product, Third Quarter 2004, which can also be purchased by clicking here, www.statisticalbookstore.gov.hk/desc_eng.htm, or by calling the Publications Sales Section of ISD. Both the hard and soft copies of the report are available for sale at $28 per copy, with a postage charge for the hard copy.