Hong Kong’s economy grew at the slowest pace since the global financial crisis in the first quarter as Europe’s sovereign-debt woes undermined export demand and confidence.
Gross domestic product rose 0.4 percent from a year earlier, the government said today. That was less than the 1.1 percent median forecast in a Bloomberg News survey of 16 economists and the 3 percent expansion in the three months ended December 2011. The latest number was partly dragged down by a high comparative base.
Slower growth adds to challenges for incoming Chief Executive Leung Chun-ying, who takes office July 1 after pledging to aid low-income earners, increase housing supply and address “deep-rooted conflicts” in society. The government forecasts an expansion of between 1 percent and 3 percent for the full year, the least since 2009, as Europe’s debt crisis threatens trade and the financial services industry.
“The biggest danger this year continues to be the risk of financial contagion from Europe, especially if it triggers an accelerated withdrawal of European bank capital from Asia, or spills over to derail the U.S. recovery,” Donna Kwok, a Hong Kong-based economist at HSBC Holdings Plc, said before today’s announcement.
Hong Kong’s economy grew 0.4 percent quarter-on-quarter. Full-year growth was 5 percent in 2011. The government today maintained a forecast for inflation of 3.5 percent this year, while the growth estimate was also unchanged.
Weaker-than-forecast trade numbers for China yesterday added to concern over the outlook for exports. Hong Kong reported a 6.8 percent decline in overseas shipments in March from a year earlier. Data for April is yet to be released.
Public discontent is rising after surging property prices made Hong Kong the world’s most expensive place to own a home, while median monthly household income has remained unchanged at HK$20,000 ($2,578) since 1997. Thousands of workers took to the streets on the Labor Day holiday on May 1, demanding that Leung address a widening wealth gap.
About 5,000 people gathered at Victoria Park in Causeway Bay and made their way to government headquarters, said Poon Man-hon, policy researcher at the Hong Kong Confederation of Trade Unions. The group is calling on Leung to raise minimum wages and standardize working hours to a maximum of 44 a week. The police estimated 2,400 people attended the protest, Radio Television Hong Kong reported.
“Weakness in trade and the financial industry have been weighing on Hong Kong’s growth and are risks for the rest of the year,” said Tomo Kinoshita, an economist at Nomura Holdings Inc. who works in the city. “At the same time, Chinese tourists are still visiting in big numbers and the government’s aggressive investment in infrastructure will help the economy to maintain momentum.”
Flood of Tourists
Visitor arrivals from China rose 21 percent in the first three months of this year to almost 7.9 million, according to the Hong Kong Tourism Board.
Home prices have gained more than 75 percent since early 2009 on record-low mortgage rates and an under-supply of new units, prompting the government to raise minimum mortgage down- payments and charge extra property transaction taxes to avoid the formation of an asset bubble.
The Hang Seng Property Index (HSP), which tracks the city’s seven biggest builders including Sun Hung Kai Properties Ltd. (16) and Cheung Kong Holdings Ltd. (1), has gained more than 40 percent since the start of 2009.
Financial Secretary John Tsang said May 3 that officials are guarding against the risk of “a potentially dangerous housing bubble” developing because of low interest rates and abundant liquidity. Any “positive surprises regarding the global economy or central bank actions could re-ignite a liquidity-driven boom in our property market,” he said.
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