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Economics – Markets – Strategy
Economics: Hong Kong
full-year exports forecast slightly higher to 8%. These figures are in favor of our
view that there is an ongoing structural change in the world’s final demand,
that is, Asian demand is driving global growth nearly as much as the US and
may soon surpass it.
Softer, but still healthy, domestic-demand led growth
Going forward, we continue to expect domestic consumption to maintain abovetrend
growth, but as mentioned before, it is unlikely to be as spectacular as
2007. Investor sentiment was clearly dampened by the turmoil in global markets.
Money supply and loan growth retreated back from the peak in 4Q07 to slower,
but more sustainable levels (Chart 3). Meanwhile, the development of the labor
market was in-line with our earlier projections. In the first four months of this
year, unemployment (s.a.) stalled at around the 3.3%-3.4% levels (Chart 4), indicating
that the labor market has remained tight, but further improvement seems to be
rather limited this year. Employers are more cautious in hiring amidst the global
uncertainties. Accordingly, payroll growth might start to stagnate in the third
quarter and lag behind increases in inflation. But this will unlikely last in the
longer-term, assuming inflation will show signs of leveling off in 4Q08.
Chart 3: Money supply and loan growth
% YoY, 3mma % YoY, 3mma
30
25
20
15
10
5
0
M3 (LHS)
HKD Loans (LHS)
HSI (RHS)
-10
-20
-5
-30
Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08
70
60
50
40
30
20
10
0
Chart 4: Labor market
% YoY %
Employment (LHS)
7
2
Nominal Payroll (LHS)
6
Unemployment Rate (RHS)
3
5
4
4
3
2
1
0
7
-1
8
-2
Latest: Apr08
-3
9
Jun-01 Jul-02 Aug-03 Sep-04 Oct-05 Nov-06 Dec-07
5
6
Inflation to accelerate in 3Q08…
Consumer inflation has surprised
on the upside, mainly because
of higher import prices. Accordingly,
we have adjusted our 2008
consumer inflation forecast higher
to 5.0% YoY from 3.8% earlier.
As of April, CPI inflation edged
up to 5.4% YoY (Chart 5). Like
the rest of the world, Hong Kong
was not spared from the surge
in global oil nor food prices, and
the weak Hong Kong dollar made
imports even more expensive.
The prices of both Brent and WTI
crude oil have climbed above
USD130/bbl. Not only do car
Chart 5: CPI
%-pts contribution to CPI YoY
6.5
Food Non Food
5.5
4.5
3.5
2.5
1.5
0.5
Latest: Apr08
-0.5
May-06 Oct-06 Mar-07 Aug-07 Jan-08
CPI inflation has
surprised on the
upside owing to
higher import
prices
77