'Private consumption and services are very strong, supported by rising household income, falling interest rates and expansionary fiscal policy,' said Joe Lo, senior economist at Citigroup.

'Consumption should remain robust in the first half of this year. But if a US downturn and a global economic slowdown are protracted, Hong Kong's economy will be affected in the second half, including domestic demand.'

Official gross domestic product data is due to be released on Feb 27 and the source said there would be revisions to growth for the first three quarters of last year.

Exports grew 9.2 per cent by value last year, government data showed last month, but the quasi-government Hong Kong Trade Development Council sees growth easing to 7 percent this year.

Economists expect that to help push overall economic growth down to 4-5 per cent in 2008.

'If the US falls into a recession, that will hurt the trade sector and the financial market in Hong Kong,' said Paul Tang, senior economist at Bank of East Asia. He thinks the economy will grow 5 per cent this year and says the risk is on the downside.

The United States is Hong Kong's biggest export market after mainland China.

China's rapid economic development has boosted exports through Hong Kong and created strong demand for professional services, enhancing the territory's role as a 'greater China' financial services hub.

Confident consumers
Consumption was buoyed by a 39 per cent surge in the local stock market in 2007 but financial markets have been highly volatile this year.

However, interest rates continue to decline in line with US rate cuts as Hong Kong's currency is pegged to the US dollar.

More rate cuts are expected, which should underpin consumer confidence, while wages continue to rise as a four-year economic boom has generated plenty of new jobs, pushing unemployment down to 3.4 per cent, its lowest level in nearly a decade.

Financial Secretary John Tsang is expected to offer one-off tax rebates in his annual budget next Wednesday and has pledged to cut taxes on both salaries and profits by 1 percentage point.

Wage growth is spurring consumer spending and retail sales in 2007 rose 12.8 per cent, totalling HK$247.6 billion (S$45 billion). Rapid growth in tourists arriving from mainland China also helped.

The strong economy is pushing up underlying inflation, which is expected to top 4 per cent soon, offsetting some of the wage growth. -- REUTERS