Hong Kong Dodges Recession as China’s Shoppers Counter Weakness in Exports

Hong Kong’s economy grew 0.1 percent in the third quarter from the previous three months as low unemployment and tourists from China boosted consumption while Europe’s crisis dragged on exports.

The figure released by the government yesterday compared with a revised 0.4 percent contraction in the three months ended June and the median estimate of no change in a Bloomberg News survey of 15 economists.

Asian policy makers are weighing steps to support growth as Europe’s debt crisis threatens to engulf Italy and trigger a global slump. The GDP number showed Hong Kong skirting a technical recession, defined as two straight quarters of contraction. Chief Executive Donald Tsang warned this week in New York that there’s a 50 percent chance the global economy will shrink next year.

“A persistent stall of the economy will prompt the government to pledge another round of fiscal relief measures in February’s budget,” said Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong.

The economy grew 4.3 percent from a year earlier, down from a revised 5.3 percent gain in April-through-June, the government said. Officials lowered their estimate for the full-year expansion to 5 percent from a range of 5 percent to 6 percent in an August estimate.

‘No Silver Bullet’

“There may be some fiscal measures, like tax rebates in the next budget, as a government response to the slowdown,” said Joseph Lau, an economist at Societe Generale SA in Hong Kong. “However there’s no silver bullet here. It will largely be a case of riding this out.”

The macro risk for Hong Kong has shifted to growth from inflation, government economist Helen Chan said at a press briefing in the city. In 2012, the expansion may be as little as 2 percent, Tsang said Nov. 8.
Exports declined in September for the first time in almost two years and the government said yesterday that the trade outlook is “bleak.” Inflation may be 5.2 percent for the full year, down from an August estimate of 5.4 percent, it said, citing smaller gains in global food and commodity prices.

In contrast, retail sales have been bouyant, with 11 million tourist arrivals in the third quarter. The jobless rate stayed at 3.2 percent for the three months ended September, a 13-year low.

Private consumption rose 8.8 percent in the third quarter from a year earlier and business investment climbed 10.2 percent, yesterday’s report showed.

Flood of Tourists

“Mainland Chinese tourists are flooding our store and the mall and so we are recruiting more sales people right now,” said Leung Chun-kit, 31, a salesman at Golden Computer Accessories Ltd., a retail shop in Wanchai. “I don’t really feel any impact from the European crisis -- that doesn’t matter to us at all.”

The threat of a global slowdown is intensifying downward risks in Hong Kong’s home market, Financial Secretary John Tsang said Oct. 27. Home sales halved last month from a year earlier to HK$22.5 billion ($2.9 billion), after the government raised minimum down-payment requirements and imposed taxes on some transactions to curb prices that surged more than 70 percent since the start of 2009.

Side-effects of global market volatility include cancelled share offerings in the city. Sany Heavy Industry Co., the construction-equipment maker backed by China’s richest man Liang Wengen, postponed in September a $3.3 billion stock sale. Hong Kong’s benchmark Hang Seng Index (HSI) index has tumbled 17 percent this year.

“Some Shocks”

Hong Kong’s economy may face “some shocks” in coming quarters as global growth is losing traction, Chief Executive Tsang told reporters during the Asia-Pacific Economic Cooperation forum in Honolulu today.

“Although Hong Kong’s economy is now fundamentally sound, we are facing an uncertain outlook,” said Tsang. “The government will roll out measures to support small- and medium- sized companies if needed.”

Chinese president Hu Jintao urged Hong Kong’s government to ensure long-term economic stability and prosperity during a meeting with Tsang at the APEC forum, the official Xinhua News Agency reported today. Hu said the central government has been unwavering and consistent in supporting Hong Kong’s economy, according to Xinhua.

Asian Response

Across Asia, officials are girding for any deterioration in the global economy. China’s lending rebounded in October according to data released yesterday, signaling that officials may be loosening limits on credit growth. Indonesia this week cut benchmark interest rates for the second straight month.

Malaysia left interest rates unchanged for a third straight meeting yesterday. Bank Negara Malaysia kept the benchmark overnight policy rate at 3 percent, as predicted by 18 of 19 economists surveyed by Bloomberg News.

Hong Kong’s merchandise exports fell 2.2 percent in the third quarter from a year earlier, yesterday’s report showed.

“The negative impacts on the global economy caused by the euro zone sovereign-debt crisis and the ensuing global financial turbulence have intensified towards the end of the third quarter, and are likely to remain pronounced,” the government said in a statement. “While the euro zone debt problem will remain a key threat to the global economic outlook, the weakness in the U.S. economy also warrants concern.” (Bloomberg)