Forecast growth

Mrs Chan said, in the light of an exceptionally strong GDP outturn of 6.8% growth for the year's first three quarters, and even after allowing for some possible moderation in external trade in the fourth quarter, the forecast GDP growth for 2006 as a whole has been revised up from 4-5% to 6.5% in the current update.

She said external trade regained vigorous in the third quarter after some moderation in the second.

Merchandise exports saw faster growth of 8.9% in real terms in the third quarter over a year earlier, thanks to thriving trade flows in the Mainland and the renewed weakening of the US dollar in recent months.

Exports of services likewise grew strongly, by 8.6% in real terms, along with vibrant offshore trade and buoyant financial market activities.

Optimistic outlook

Mrs Chan said the outlook for the remainder of 2006 is for a further expansion in economic activity at a solid pace.

Externally, despite the economic slow-down in the US, the economic situation elsewhere is still very favourable. The vibrant Mainland economy and its surging trade flows, in particular, will continue to provide the main impetus to Hong Kong's trade growth.

Economic recovery in the euro area and Japan remains on track. The recent easing in oil prices and the pause in interest rate hikes in the US will also help to reduce some downside risks to the global economy.

Against this background, Hong Kong's external trade looks set for further growth in the fourth quarter, particularly with the additional boost from a weak US dollar, she said.

Consumer spending

Mrs Chan said local consumer spending rose solidly, amidst improving employment income, expanding job opportunities and a buoyant stock market.

A more stable property market, together with the pause in interest rate hikes, also helped. Private consumption expenditure attained solid growth of 4.4% in real terms in the third quarter over a year earlier, further on growth of 4.5% and 5.1% in the first two quarters.

On a seasonally adjusted quarter-to-quarter comparison, private consumption expenditure grew 0.5% in real terms in the third quarter, following 1.2% growth in the second quarter.

Overall investment spending accelerated markedly to double-digit growth at 12.7% in real terms in the third quarter over a year earlier, marking the fastest growth since the fourth quarter of 2000. 

Business confidence

Machinery and equipment investment, which surged by 22.4%, was the key driver of overall investment growth, reflecting strong business confidence.

The prevailing business confidence is likewise strong, which should provide the favourable ground for a further surge in machinery and equipment investment. 

Construction activity, though likely to remain weak in the near term, might also show some relative improvement if private sector activity can continue to stabilise.

Inflation moderate

CPI inflation has remained moderate so far this year and is likely to remain so through to year's-end given the recent easing in oil prices and notable growth in labour productivity, Mrs Chan said.

With the actual outturn of the Composite CPI in the first 10 months of 2006 in line with expectations, the forecast rate of increase in the Composite CPI for 2006 as a whole is maintained at 2%. The forecast rate of change in the GDP deflator for 2006 as a whole is likewise kept unchanged at 0%.

With robust economic expansion transpiring into broad-based job creation, the labour market continued to show extensive improvements recently.

Some 311,000 additional jobs have been created since the trough in 2003, bringing the seasonally adjusted unemployment rate down to a 64-month low of 4.5% in the three months ending October. The number of long-term unemployed has fallen by 55%.