Despite the moderate growth in the second half of this year, Hong Kong's economy is still projected to grow by 7 percent for the year as a whole, according to a macroeconomics forecast released by the APEC Study Center of the University of Hong Kong (HKU) Wednesday.

Richard Wong Yue-chim, director the APEC Study Center at HKU, said at a press conference Wednesday that stable property prices and improving employment prospects are shoring up local consumer spending.

He added that investment spending is strengthening due to the increase business opportunities brought about by the Chinese Mainland/Hong Kong Closer Economic Partnership Arrangement (CEPA), as well as the expected lowering of real interest rates.

Wong believed that strong domestic demand, coupled with continued global economic recovery ,will help drive Hong Kong's economy forward.

Chow Yei-Ching, chairman of the Steering Committee of the Hong Kong Macroeconomics Forecast, said the "real GDP growth in the third quarter is forecast to be 6.1 percent compared with the same period last year.

He said this growth estimate is an upward revision of the 5.4 percent forecast released on July 8, 2004, due to the accelerated growth in private consumption in the second quarter of 2004. For the year as a whole, real GDP is forecast to grow by 7.0 percent on a year-on-year basis.

He said, boosted by the better consumer sentiment and the lower base of comparison due too the SARS epidemic last year, private consumption spending surged by 11 percent in the second quarter of 2004. It is projected to grow by 6.3 percent in the third quarter and by 5.2 percent in the fourth quarter of 2004, both on a year-on-year basis.

He said the volume of retail sales compared with last year grew by 8.1 percent year-on-year in July 2004, rising from he twelfth consecutive months.

Wong said, given the sustainable growth in the number of visitors from the Chinese mainland, exports of services surged by 31.3 percent in the second quarter of 2004, partly due to the lower base of comparison.

He said that at the same time, investment spending in machinery, equipment and computer software rose remarkably by 26.1 percent in the second quarter of 2004. Deflation, as measured by the year-on-year percentage change of the Composite Consumer Price Index, has come to an end in the third quarter of 2004. Improved consumer sentiment and rising import prices eased the deflationary pressure.