HK's Q3 GDP suggests bottoming out of slowdown

Hong Kong Government Economist Helen Chan said that having regard to the outturn of a subdued 1 percent year-on-year real GDP growth in the first three quarters of 2012, and in cognizance of possibly some relative improvement in the fourth quarter, the GDP growth forecast for 2012 is slightly revised to 1.2 percent, from the earlier range forecast of 1 percent to 2 percent in the August round.

Lam and Yim expected GDP to recover gradually to around trend but do not foresee a steep rebound. Growth should climb up to around 2.5 percent in Q4 and settle near 3 percent in 2013. This outlook implies that sizeable slack is likely to remain, hence keeping inflation at contained level for coming months.

Chan noted that underlying consumer price inflation tapered successively from 5.9 percent in the first quarter to 4 percent in the third quarter, thanks to receding domestic and external price pressures.

In Chan's view, the more moderate increases in import prices in recent months should help to keep inflation largely contained in the rest of the year. However, with the rebound of global food prices in July and August following the drought in the US, the new round of quantitative easing in the advanced economies, and the renewed pick-up in local housing rentals in the past few months, the pace of tapering in Consumer Price Index inflation in the months ahead is expected to be slower than earlier envisaged.

Chan said that judging from the actual outturn so far and the latest developments, the forecast rates of headline and underlying consumer price inflation for 2012 as a whole are slightly revised upwards to 3.9 percent and 4.5 percent respectively, from 3.7 percent and 4.3 percent in the August round.