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2005 and 2006
Real GDP Growth in the past 10 years
-5
0
5
10
15
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
%
U.S. Japan China Hong Kong
Average 3.3% 1.0% 8.4% 3.1%
% 2004 2005F 2006F
U.S. 4.4 3.5 3.3
Japan 2.6 1.3 1.6
China 9.5 8.5 8.2
PEO Economies (weighted average) 5.4 4.2 4.2
East Asia 6.5 4.9 5.0
Other PEO economies 4.2 3.4 3.3
Hong Kong 8.1 4.7 4.1
Real GDP Growth Rate Forecasts
0
2
4
6
8
10
PEOEconomies
U.S. Japan China Hong Kong
%
2004 2005F 2006F
Real GDP Growth Forecasts
Strong Growth in 2004
• Strongest growth in real GDP in about 20 years for the global economy
• A sharp rebound in East Asia from 2003, which was marked by the SARS outbreak in parts of the region
• Strong growth in U.S. led by very strong domestic demand
• China confirmed as a new growth engine for the region
• Strong growth in China led by fixed asset investment and consumption
• China overtook Japan as the 2nd most important trading partner for many Asia Pacific economies; and overtook the U.S. as Japan’s most important trading partner
2005 Slowdown
•Slower but still robust growth
•Further monetary tightening
•The growth engines – China and the U.S. are both projected to slow down
•Investment is projected to continue to decline in China
•Higher energy and non-oil commodity prices
•Slower growth in Southeast Asia
2006 Consolidation
•Lower oil prices
•Tightening monetary policy
•Dollar value of the U.S. current-account deficit should start to fall as a share of GDP
•Lagged effects of U.S. dollar depreciation should start to show up in higher levels of exports and lower growth of imports
Hong Kong’s Real GDP Growth
5.1
-5
3.4
10.2
0.51.9
3.1
8.1
4.7 4.1
-10
-5
0
5
10
15
1997 1998 1999 2000 2001 2002 2003 2004 2005F 2006F
y-o-
y %
cha
nge
Date of Forecast: March 21, 2005.
Y-o-y growth rate (%) 2002 2003 2004 2005F 2006F
Gross Domestic Product 1.9 3.1 8.1 4.7 4.1
Private Consumption Expenditure -1.1 -1.1 6.9 4.6 3.5
Gross Investment -4.5 0.9 4.1 2.8 2.4
Real Exports of Goods & Services 9.2 13.1 15.3 10.0 9.1
Export of Goods 8.7 14.2 15.3 10.1 9.2
Export of Services 11.7 8.1 15.0 10.0 8.5
Real Imports of Goods & Services 7.5 11.5 13.8 9.8 8.9
Import of Goods 7.9 13.1 14.1 10.0 9.0
Import of Services 3.7 -2.1 10.7 8.0 7.5
Private Consumption Expenditure(volume)
0.3
-2.3-1.0 -1.3
-3.5-4.8
0.1
3.95.7
10.9
5.3 5.94.6
-10
-5
0
5
10
15
02Q1 03Q1 04Q1 05Q1
Y-o
-y %
cha
nge
2004 2005F 2006F
PCE 6.9% 4.6% 3.5%
-12.2
-1.0
-4.4
-0.3
5.0
-4.7
0.82.7
5.1
11.5
2.2
-1.4
2.2
-15
-10
-5
0
5
10
15
02Q1 03Q1 04Q1 05Q1
Y-o
-y %
cha
nge
Gross Domestic Fixed Capital Formation(volume)
2004 2005F 2006F
Investment 4.1% 2.8% 2.4%
Merchandise Trade
-20
-15
-10
-5
0
5
Jan-02 Jan-03 Jan-04 Jan-05
HK$ bn
0
50
100
150
200
250
HK$ bn
Balance Imports Exports
2004 2005F 2006F
Exports 15.3% 10.0% 9.1%Imports 13.8% 9.8% 8.9%
Visitor Arrivals
0
500
1,000
1,500
2,000
2,500
Jan-02 Jan-03 Jan-04 Jan-05
Per
son
('000
)
0
20
40
60
80
100
% o
f V
A f
rom
Mai
nlan
d C
hina
.
Mainland (non-IVS) Mainland (under IVS)
Other Countries % of Mainland Visitors
Record-breaking performance to be expected
2004 2005F 2006F
Total Visitor Arrivals (mn) 21.8 23.41 27.14
Total Tourism Expenditure (HK$ bn) 91.8 97.8 114.7
• Hong Kong Disneyland will open in September 2005
• Other new infrastructure projects include Hong Kong Wetland Park and Tung Chung Cable Car
• An additional funding of HK$470 million will be used by HKTB to implement the 2006 Discover Hong Kong Year Campaign
Source: Hong Kong Tourism Board
Composite CPI(y-o-y % change)
-10
-5
0
5
10
Jan-97 Jan-99 Jan-01 Jan-03 Jan-05
%
2004 2005F 2006F
Inflation -0.4% 1.5% 2.0%
Unemployment Rate(Seasonally Adjusted)
5
6
7
8
9
Jan-02 Jan-03 Jan-04 Jan-05
End month of 3-month average
Rat
e (%
)
Hang Seng Index versus Nasdaq
3,000
6,000
9,000
12,000
15,000
Jan-02 Jan-03 Jan-04 Jan-05
500
1,000
1,500
2,000
2,500
Hang Seng Index Nasdaq
Property Price Indices1999=100
25
50
75
100
125
150
Jan-02 Jan-03 Jan-04 Jan-05
Domestic Premises Offices Retail Premises Flatted Factories
Residential Mortgages Loans in Negative Equity
0
20
40
60
80
100
120
Mar2002
Jun Sep Dec Mar2003
Jun Sep Dec Mar2004
Jun Sep Dec Mar2005
No. ('000)
0
30
60
90
120
150
180
HK$ bn
Number Value
Risk: Depreciation of US dollar
100
110
120
130
140
Jan-02 Jan-03 Jan-04 Jan-05
USD Trade Weighted Index – BroadJan 97 = 100
•A further widening imbalance in trade and financial flows (current-account deficit in U.S. vs. current-account surpluses in many East Asian economies)
•U.S. current-account deficit expected to reach a record US$775 billion or 6.1% of GDP by year end
•PEO forecasts a fall in the trade-weighted US dollar of 6.1% in 2005 and 5.6% in 2006
•A sudden loss of confidence in the US dollar could precipitate a disorderly decline in the value of the US currency
•The current-account surplus in China will rise from 2.4% in 2004 to 3.1% in 2005 and 3.3% in 2006, fuelling calls for early
revaluation of the yuan and fanning protectionist sentiment in industrialized countries
HIBOR versus LIBOR
-300
-150
0
150
300
Jan-02 Jan-03 Jan-04 Jan-05
bp
-4
-2
0
2
4
% pa
Spread of 3-month HIBOR over LIBOR 3-month HIBOR 3-month LIBOR
Risk: Interest Rate Increases