City's GDP forecast dips to 1.6%, dragged down by external forces

Asia Development Bank has cut its GDP growth forecasts for Hong Kong and the mainland, citing external challenges, and its city's forecast for this year was down significantly to 1.6 percent from 3 percent previously.

"Hong Kong's economic structure is heavily dependent on Europe and the US, and at the same time, its trade relation with the mainland is quite significant," Changyong Rhee, chief economist at the bank, told a press conference in Hong Kong on Wednesday.

Hong Kong now has to confront two negative shocks - the slowdown of developed economies and the global financial uncertainties as well as the slow down in the Chinese economy, Rhee added.

Asia Development Bank also ratcheted down its 2013 GDP growth estimate for Hong Kong to 3.9 percent from 4.5 percent.

The continuing debt crisis in the European Union and the weak US economic recovery have dampened growth in the small, open economy of Hong Kong.

The city's GDP grew by 0.9 percent year-on-year in the first half of 2012, compared with 6.4 percent in the same period of 2011.

Hong Kong's external trade was also severely affected, with exports falling by 2.6 percent in the first half, reversing its 7.3 percent growth recorded a year earlier.

Asian Development Bank, which said in April that Hong Kong would record a 3 percent GDP growth in 2012, now considers that forecast to be too "optimistic". Hang Seng Bank believes Hong Kong's GDP growth will be 2 percent in 2012; Credit Suisse predicts the city's economy will grow by 1.4 percent , while J P Morgan and Fitch Ratings both forecast the growth rate to be 1.2 percent.

The bank also cut its GDP growth forecast on the mainland in 2012 to 7.7 percent from 8.5 percent; reducing its 2013 forecast to 8.1 percent from 8.7 percent.

Aside from the weakened external demands, the mainland's economic growth slowdown was partially a result of the delayed effects of the intentional stabilizing policy, said Changyong Rhee.

With the rapidly falling inflation rate on the mainland, there is ample room for the central government to use fiscal resources to moderate the slowdown, said Rhee.

He pointed out that the central bank in China has already cut the interest rate twice this year, and that Beijing is relying on some expansion policies, but was not as aggressive as before.

"They (the central government) have room to do it (provide stimulus for the economy), but it doesn't necessarily mean they have to do it," said Rhee, adding that he believes the central government will adopt a wait-and-see approach and fine tune its policy.

"Recently, the central government has announced some large-scaled infrastructure projects to (stimulate the economy), (but) most of the announcements were coming from local governments," said Rhee, adding that "it is very important to see whether the new government will endorse and support all the local governments' projects."

sophiehe@chinadailyhk.com

(HK Edition 10/04/2012 page2)