HK's economy forecasted to increase by 4.5% in 2008

Hong Kong's economy is expected to expand by 4.5% this year, and 4.8% next year, according to Asian Development Bank's annual forecasts on Asian developing economies.

The Manila-based lender predicted the city's inflation rate this year to reach 3.4%, and 2.8% next year.

The merchandise exports of the city are expected to decline, as a slower growth on the Chinese mainland, shrinking in the U.S. and a strong RMB. However, the Hong Kong dollar is projected to depreciate against many other currencies in correlation with a weaker U.S. dollar, will support exports to Asian and other markets, according to the report.

The domestic demand will stay strong this year. The support from the Chinese mainland is good for the city, said Ifzal Ali, the chief economist of the bank on the release of the Asian Development Outlook 2008.