Hong Kong's economy reported a 7.2% real expansion in GDP in the first quarter of 2011 on a year-on-year basis, following growth of 6.8% in 2010 as a whole. The January-March figure was equivalent to 2.8% on a seasonally adjusted quarter-on-quarter basis, leading the government to revise up its forecast for GDP growth this year to 5-6%, from 4-5% previously. Economic output continues to be supported by private consumption, continued low unemployment, strong visitor arrivals from mainland China and growth in foreign trade.

Private consumption expenditure rose by 7.6% year on year and by 0.7% on a seasonally adjusted quarterly basis in January-March 2011. This was supported by a fall in the unemployment rate to 3.4%, bringing joblessness close to its post-handover low of 3.3% in mid-2008. The seasonally adjusted unemployment rate in February-April showed a slight increase, to 3.5%, compared with 3.4% in January-March, indicating that further reductions in unemployment will be difficult to achieve. The labour force expanded by 15,700 between the two periods, to 3.72m, but despite an increase in the number of people in work, the absolute unemployment figure rose by 7,400 to 131,900 in February-April. School leavers entering the job market over the summer, together with the implementation of a minimum wage from May 1st, may limit further falls in unemployment in the remainder of 2011. Other data point to strong private consumption, including a 26% year-on-year increase in the value of retail sales in March, to HK$31.2bn, and a rise in restaurant receipts of 5.9%, to HK$7.3bn.

In addition to rising private consumption, government consumption was up by 2.7% year on year in the quarter in real terms, and investment in large-scale infrastructure projects supported building and construction expenditure, which was up by 13.4%, despite the offsetting role of private-sector construction. By contrast, the more volatile category of machinery and equipment investment reported a 13.8% fall, leading to a 1.1% decline in overall investment spending in the quarter. As the machinery and equipment category of investment spending is volatile, the government stated that the fall in overall investment in the quarter was likely to be only temporary.

Goods exports were up by 16.8% year on year in the first quarter, underpinned by healthy economic growth in mainland China, although exports to the US and Europe were less buoyant. The figure was also a considerable improvement compared with that of 8.2% recorded in the fourth quarter of 2010. Goods exports were up by 14.4% quarter on quarter on a seasonally adjusted basis in January-March. Customs data for March show merchandise exports up by 21.5% year on year to HK$281.5bn in the month, with imports rising by 18.8% to HK$321.6bn.

Services trade is a more important contributor to GDP than trade in goods. The services subcomponent was lifted by a 9.1% year-on-year increase in services exports, with a stellar performance in the financial and business services sectors. This was down slightly from growth of 9.3% in October-December 2010, but services exports were up by 4% on a seasonally adjusted quarter-on-quarter basis in January-March. Financial and business services, which were up by 14.3%, are being underpinned by demand for crossborder financing as well as by Hong Kong's expertise with regard to the Chinese mainland. Trade-related and travel services also reported healthy growth in the first quarter, at 11.4% and 9.6% respectively, underpinned by trade with China and tourism inflows, while transport services reported paltry growth, at just 1% year on year, owing to the fact that Hong Kong's logistics services are facing increasingly stiff competition from mainland operators.