Hong Kong Tips Into Recession, Most Accurate Forecaster Says

Hong Kong's Central District
The AIA Central Tower, left, along with other high rise buidlings stand in the Central district as Victoria Harbour beyond is covered by a haze in Hong Kong, China. Photographer: Jerome Favre/Bloomberg

Hong Kong’s economy, a barometer of global growth, probably sank into recession with a contraction in the third quarter, according to Daiwa Capital Markets Ltd. and Australia & New Zealand Banking Group Ltd.

Gross domestic product shrank 1.5 percent from the previous quarter, seasonally adjusted, said Kevin Lai, a Hong Kong-based economist at Daiwa. The report is due Nov. 11. Lai came closest in a Bloomberg News survey to predicting the 0.5 percent contraction in the second quarter.

Hong Kong’s exports declined in September for the first time in almost two years, and the benchmark Hang Seng Index plunged 21 percent in the third quarter, the biggest loss since 2001, as Europe's debt crisis roiled global markets. Donald Tsang, the city's chief executive, warned yesterday in New York that there’s a 50 percent chance of a world recession in the coming year.

“The economy is faltering on a rapidly deteriorating external environment,” said Raymond Yeung, an economist at ANZ in Hong Kong. Hong Kong is “the nerve center of regional economic activities” and “any degeneration may signal a global economic downturn,” Yeung said.

Analysts in a Bloomberg News survey are split on whether the economy contracted in the latest quarter, meeting the technical definition of a recession. Seven out of 15 forecast a gain in GDP, seven predict a fall and one sees no change.

Stocks Rise

The Hang Seng Index rose 0.8 percent as of 11:28 a.m. local time today ahead of a report tomorrow that may show inflation easing in China.

Europe’s debt crisis and elevated U.S. unemployment have sapped demand for Asian exports, contributing to an easing in economic growth in nations from China to South Korea. Taiwan’s economy shrank 0.28 percent in the third quarter from the previous three months, the first contraction since 2009, a government report showed Oct. 31.

Besides weakness in global trade, Hong Kong is grappling with elevated inflation and the risk of a slumping housing market. Shares of Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, fell 17 percent this year, worse than 14 percent slide in the benchmark index.

Hong Kong’s economy grew 4.2 percent from a year earlier in the third quarter, the smallest increase since 2009, according to economists’ median estimate.

While weakness in global demand hurt the economy, retail sales have remained robust, said Donna Kwok, a Hong Kong-based economist for HSBC Holdings Plc.

“Consumption should remain strong amid a tight labor market,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “We have consumption being the sweet spot, counteracting weak external demand.”

Private spending accounted for about 62 percent of Hong Kong’s GDP in 2010, according to Cheung.

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