Hong Kong Q2 GDP growth 6.9 pct yr-on-yr; 2007 GDP target revised to 5-6 pct

Aug 17, 2007 - The Hong Kong government raised its 2007 gross domestic product (GDP) forecast Friday after the second-quarter reading beat economist expectations, driven by exports and consumption.

GDP rose 6.9 percent in the quarter from the year earlier, above the Thomson IFR forecast for a rise of 5.7 percent.

Merchandise exports expanded 11.3 percent in the quarter while domestic consumption increased 6.6 percent. Investment spending grew 11.1 percent.

For the first half, GDP expanded 6.3 percent.

The government said it now expects GDP to rise 5-6 percent in 2007, up from its previous estimate of 4.5-5.5 percent. The new estimate takes into account the uncertainties in the external environment, it said.

"Indeed, barring any abrupt adverse changes in the external environment, the economy is set for further solid growth in the second half of the year," the government said in a statement.

The government said it's sticking with its inflation forecast for the year of 1.5 percent.

The unemployment rate for the quarter stands at its lowest level since mid-1998 at 4.2 percent. Job vacancies surged to a post-1997 high in March.

Going forward, the government warned of uncertainty arising from the US economy as it struggles with sub-prime mortgage worries and the resultant tightening of credit conditions in many other markets.

"The external environment will also be affected by the movements of exchange rates as well as the macroeconomic adjustment measures in the Mainland," the statement said.

The government expects the economy to receive a boost from the strong growth in mainland China and other emerging markets, as well as the sustained economic expansion in Japan and Europe.

On inflation, the government said higher food prices, the stronger yuan and recent weakness in the US dollar would continue to exert cost pressure.

However, the sustained increase in productivity is expected to provide an offset.

(1 usd = 7.8 Hong Kong dollars)