Hong Kong Extends Longest Growth Streak Since 1997

Hong Kong's economy extended its longest winning streak since 1997 with a 6.8 expansion last year, Financial Secretary Henry Tang said in a budget speech today.

The growth was slower than the 7.3 percent in 2005. The expansion was quicker than the 6.6 percent median estimate of 20 economists surveyed by Bloomberg News.

Hong Kong's economy has been growing for three and a half years, the best performance since the Asian financial crisis, as the city services China, the world's fastest-growing major economy. A jobless rate of 4.4 percent, the lowest in six years, is boosting consumption and cutting dependence on exports.

``It's a marginal slowdown,'' said Michael Dai, senior economist at Bank of China (Hong Kong) Ltd. in Hong Kong. ``But if you look at the growth of the past three to four years, it hasn't been this good for 20 years.''

The city's economy will grow between 4.5 percent and 5.5 percent this year, Tang forecast today. The median estimate of economists surveyed by Bloomberg was 5.2 percent.

Inflation this year will probably be 1.5 percent and will average 3.5 percent over the next four years, Tang said.

Hong Kong will have a budget surplus of HK$55 billion ($7 billion), Tang said. Economists had estimated a consolidated surplus of HK$30 billion. The city will have an operating surplus of HK$38.6 billion, forecast Tang, who said integration with China is a ``pivotal'' factor in Hong Kong's development.

Higher Salaries

``A global slowdown could result in a drop in exports, curbing this year's growth,'' said Steven Rowles, an analyst at CFC Seymour Ltd. in Hong Kong. ``The domestic side of the economy should remain robust, with strong investment and growth in consumption because of the job market.''

The benchmark Hang Seng Index gained 34 percent last year, reaching 20,000 for the first time, as investors bet on the initial public offerings of mainland companies such as China Communications Construction Co., a port builder. Hong Kong's index slid 2.83 percent yesterday as China's stocks plunged 9.2 percent, the biggest decline in 10 years.

The Hang Seng dropped 3.4 percent at 11:24 a.m. today while the Shanghai and Shenzhen 300 Index, which tracks yuan- denominated A shares listed on China's two exchanges, declined 0.35 percent.

``We have to encourage our staff when business is good, so we raised their salaries,'' said Vincent Chow, Group General Manager at Chow Sang Sang Holdings International Ltd., a jewelry retailer in Hong Kong.

Labor Market

Consumer spending has been supported by the city's falling interest rates. Hong Kong's biggest lender HSBC Holdings Plc. cut its best lending rate in November and this month cut its mortgage loan rate.

Esprit Holdings Ltd., a clothing retailer, said retail sales in Hong Kong climbed 16.4 percent in the six months to Dec. 31 from a year earlier. Housing sales surged 89 percent in January, according to the Land Registry.

The International Monetary Fund expects the city's economy to grow about 5.5 percent this year, according to a report last month. The main near-term risks are ``a sharper slowdown in global demand, particularly in the United States, and a rise in protectionist sentiments against China,'' the IMF said.

``Domestic demand has been underpinned by a healthy labor market, the rally in the Hang Seng Index and a stable property market,'' Robert Subbaraman, senior economist at Lehman Brothers Inc. in Hong Kong. ``The economy is in very good shape.''

South Korea's economy grew 5 percent in 2006, Taiwan posted a 4.6 percent expansion, and China's growth was 10.7 percent.

Growth in Hong Kong's economy has slowed from an expansion of 8.6 percent in 2004, the year the city rebounded after the severe acute respiratory syndrome epidemic.

source:www.bloomberg.com