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Hong Kong Economy Grows More-Than-Estimated 6.5%

Hong Kong’s Growth May Slow to 6.3% as Chinese Economy Cools
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. Photographer: Jerome Favre/Bloomberg

Hong Kong’s economy expanded a more-than-estimated 6.5 percent in the second quarter and the government announced measures to limit the risk of bubbles in the property market.

Today’s number compared with the 6.3 percent median forecast of 13 economists in a Bloomberg News survey. Gross domestic product rose a revised 8 percent in the first quarter from a year earlier, a government report showed.

Hong Kong’s economy will grow between 5 percent and 6 percent for the full year, the government said today, revising up a previous forecast. Officials announced tighter mortgage and down-payment requirements for some home purchases and said that the city will boost the supply of land.

“The risk of property bubbles is rising” because of low interest rates and money flowing into the economy from China, said Paul Tang, a Hong Kong-based economist at Bank of East Asia Ltd.

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.

Growth may also cool through the rest of this year because a moderation in China’s expansion will flow through to the city that serves as trading and financial hub for the world’s third-biggest economy.

Stamp Duties

While Hong Kong had already raised stamp duties on some luxury property transactions and increased land supply, a further 10 percent to 15 percent gain in home prices is possible by year-end, Cusson Leung, an analyst at Credit Suisse Group AG, said before today’s announcements.

Home prices have already climbed more than 40 percent since the start of 2009, according to an index compiled by Centaline Property Agency Ltd. 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.

The economy grew 1.4 percent in the second quarter from the previous three months, seasonally adjusted, today’s report showed. That was less than a revised 2.1 percent gain in the first quarter and the 1.9 percent median estimate in a survey of six economists.

Inflation Forecast

Full-year inflation may be 2.3 percent, the government estimated today, leaving a previous forecast unchanged. Today’s prediction for full-year economic growth compared with the earlier 4 percent to 5 percent estimate.

China’s expansion is moderating after gross domestic product expanded by more than 10 percent for three straight quarters. Demand for goods shipped through Hong Kong may also be capped by weakness in the global economy as governments pare spending to reduce debt.

In the second quarter, Hong Kong’s merchandise exports rose 20.1 percent from a year earlier, compared with a 21.6 percent gain in the first quarter, today’s report showed. Growth in shipments is likely to slow in the second half, the government said.

Business investment surged in the second quarter, rising 15.2 percent, compared with a revised 8.2 percent in the first three months of the year.

While tourists flooding in from China help to support sales for retailers from Sa Sa International Holdings Ltd. to Lifestyle International Holdings Ltd., elevated unemployment is a drag on consumer spending. Household consumption increased 4.6 percent in the second quarter, after a revised 7.1 percent gain in the first three months of the year, today’s report showed.

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