Hong Kong's Growth May Slow to 6.3% as Chinese Economy Cools

Hong Kong’s economy probably expanded for a third straight quarter from a year earlier as the city sustained its recovery from the global financial crisis. Gross domestic product rose 6.3 percent in the three months ended June 30, according to the median estimate in a Bloomberg News survey of 13 economists. In the first quarter, the expansion was 8.2 percent. The figure is due at 4:30 p.m. today.

Growth may keep cooling through the rest of this year as a slowdown in China flows through to the city that serves as a trading and financial hub for the world’s fastest-growing major economy. Hong Kong’s gross domestic product may grow 6 percent for the full year after shrinking in 2009, the International Monetary Fund forecast last month.

“The slowdown is going to be moderate,” said Donna Kwok, a Hong Kong-based economist at HSBC Holdings Plc, who estimates third-quarter growth will be 4.1 percent.

The city’s Hang Seng Index of stocks declined 0.1 percent as of 10:46 a.m. local time today. The benchmark has fallen 6 percent from its highest close this year on Jan. 6 because of concern that the Asian and global recoveries may falter.

First-quarter figures were flattered by the comparison with a year earlier, when the economy shrank by almost 8 percent. The so-called base effect will fade each quarter, reining in year- on-year increases.

Photographer: Jerome Favre/Bloomberg

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Photographer: Jerome Favre/Bloomberg

Growth may keep cooling through the rest of this year as a slowdown in China flows through to the city that serves as trading and financial hub for the world’s fastest-growing major economy.

Tourists Flood In

Financial Secretary John Tsang said June 7 that Hong Kong will consider raising its full-year growth estimate this month from the current level of between 4 percent and 5 percent.

Tourists flooding in from China are bolstering sales for retailers from Sa Sa International Holdings Ltd. to Lifestyle International Holdings Ltd. and rising property prices are encouraging residents to spend.

A record 16.9 million visitors, including 10.5 million from China, entered the city in the first six months of this year. Home prices have climbed more than 40 percent since the start of 2009, according to an index compiled by Centaline Property Agency Ltd.

While Hong Kong has raised stamp duties on some luxury property transactions and increased land supply to cool the real-estate market, a further 10 percent to 15 percent gain in home prices is possible by year-end, according to Cusson Leung, an analyst at Credit Suisse Group AG.

“Resilient asset prices should help keep the domestic demand engine humming,” Kwok said.

Bridge to Macau

Infrastructure projects, including a bridge to the gambling enclave of Macau and the southern Chinese city of Zhuhai, will also support growth.

At the same time, elevated unemployment is a drag on consumption and weakness in the global economy could pose a threat to exports after a 24 percent gain in the second quarter.

July’s data from China indicated a deepening slowdown after gross domestic product expanded by more than 10 percent for three straight quarters. The U.S. economy is showing signs of weakness and efforts by governments from the U.K. to Japan to cut debt may weigh on global demand.

Hong Kong’s recovery may be “losing steam in the second half, as the negative impact of Europe’s austerity measures is yet to be fully seen,” said Irina Fan, a Hong Kong-based economist at Hang Seng Bank Ltd.

‘Bubble’ Risks

Risks may also include excessive property-price gains, with Peter Wong, HSBC’s chief executive officer for the Asia-Pacific region, warning Aug. 3 that a “bubble” could emerge. Financial Secretary Tsang said Aug. 11 that the city is “closely monitoring” such dangers.

The Hong Kong Monetary Authority has kept its base rate at a record-low 0.5 percent since December 2008, leading to reduced home-loan costs. Monetary policy decisions track those of the U.S. Federal Reserve because the city’s currency is pegged to the dollar.

Hong Kong’s economy may have expanded 1.9 percent in the second quarter from the previous three months, seasonally adjusted, the median estimate in a survey of six economists showed. That would be less than a 2.4 percent gain in the first quarter.

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

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