HK Slides Into Recession

Source : The Business Times, November 15, 2008

(Hong Kong) HONG Kong slipped into recession in the third quarter as exports were hit by weakening global demand and consumption was hurt by a drop in asset prices and concern about the economic outlook.

Third-quarter gross domestic product (GDP) shrank 0.5 per cent, seasonally adjusted, from the previous quarter.

Compared with a year earlier, GDP grew 1.7 per cent, well below an expected 2.6 per cent increase, and the government slashed its full-year growth forecast to between 3 and 3.5 per cent from a range of 4 per cent to 5 per cent.

The economy's performance in July-September was the weakest since the Sars outbreak hammered consumer and business confidence in the spring of 2003 and highlights Asia's vulnerability to a global economic downturn.

'As expected, Hong Kong is in a technical recession and this may last until early next year. The economic outlook is not that good,' said Daniel Chan, senior investment strategist at DBS Bank.

'China may help, but Hong Kong's overall exports will continue to slow down because our major trading partners, such as Europe and the US, are also in a recession,' he noted.

The International Monetary Fund forecasts 2 per cent growth for Hong Kong in 2009, but a number of local economists say it will be hard-pressed to achieve one per cent growth.

Expected job losses in the trade, retail and property sectors in particular will push the unemployment rate up from 3.4 per cent at present, curbing wage growth and deterring consumption, analysts say.

Consumer confidence fell in the second half of this year to the lowest level in four years, the Nielsen Company said, and retail sales grew by the least in 17 months in September.

The 51 per cent slump in the Hang Seng Index of stocks this year has damped spending. So, too, has weakness in real estate. The number of home sales posted the biggest drop in almost nine years in October.

Private consumption expenditure, which excludes spending by tourists, rose only 0.3 per cent in the third quarter from the previous quarter, as locals were hit by a 50 per cent plunge in the stock market this year and as property prices have started to decline.

Investment spending rose 3 per cent from a year earlier while net services exports still managed solid growth of 5.3 per cent.

Consumption had been buoyant. It was the main driver of economic growth, which averaged 7.3 per cent annually in the past four years, as the territory benefited from China's booming economy.

China will still provide some cushion for Hong Kong as mainland companies require financial services in the city and mainland Chinese are still flocking in to shop here. -- Reuters, Bloomberg