Economist warns export expansion will slow down in the second half although Hong Kong exports forecast doubled to 12 percent this year

Hong Kong exports are likely to grow by 12 percent this year, the Trade Development Council said - more than doubling its previous forecast.

The upbeat figures follow a better-than-expected global economic recovery after December estimates from the council stood at 5 percent.

However, chief economist Edward Leung warned export expansion will slow down in the second half, due to the impact of the European debt crisis. The European Union accounts for 25.9 percent of Hong Kong's consumer goods exports.

A weakening euro would affect the EU's purchasing power and eventually affect city exports, Leung said.

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Higher labor costs in the mainland caused by worker shortages, appreciation pressure on the yuan and increasing protectionism overseas all pose challenges to local exporters and manufacturers. The significant upward revision of the forecast is based on strong export growth in the first four months this year.

Exports surged 24.8 percent from a year earlier during the period, the strongest growth in more than 20 years.

Leung said: "I feel embarrassed when I look back at our original forecast. We did such a bad job, for we didn't anticipate such a strong global economic recovery."

The strong exports showing was mainly driven by electronic parts and components, which accounted for 42 percent of the total and recorded 38 percent growth from January to April.

Renewed demand after a lull during last year's economic downturn aided the surge.

New products launched this year also helped boost the consumer market, Leung added.

Analysts are not surprised at the big jump in the TDC's estimate.

A 12-percent growth is a reasonable forecast for Hong Kong's export sector and should not be too hard to achieve, Standard Chartered economist Kelvin Lau Kin-heng said.

He also echoed Leung's warning about a slowdown in the second half: "The pace of economic growth in China and US will slow down. Besides, there would be no more low-base effect for the third and fourth quarters."

A TDC survey conducted in mid-May had 69 percent of 500 traders saying they experienced labor shortages in the mainland, with 84 percent increasing worker wages in the previous three months.

Leung said if the yuan appreciates 10 percent against the US dollar, Hong Kong manufacturers' production costs would rise 5 percent.