Hong Kong’s government cut its estimate for the city’s expansion this year after the economy grew at close to the slowest pace since the financial crisis amid waning export demand from advanced nations.
Growth will probably be in a range of 1 percent to 2 percent, the government said in a statement yesterday, compared with a previous forecast of 1 percent to 3 percent. Gross domestic product rose 1.1 percent from a year earlier in the second quarter, after a revised 0.7 percent gain in the first three months.
The trade-reliant economy risks further deterioration this quarter after China yesterday reported a slump in July export growth to 1 percent. Expansion across Asia is slowing as U.S. consumers limit spending and Europe’s debt crisis continues, adding to the challenges for Hong Kong’s new Chief Executive Leung Chun-ying.
“China’s stimulus measures have yet to revive growth and given such a difficult external environment, Hong Kong’s economic growth is still facing a lot of uncertainty,” said Raymond Yeung, a Hong Kong-based senior economist at Australia & New Zealand Banking Group Ltd. Yeung said he cut his full-year forecast for the city’s expansion to 2.4 percent from 3.4 percent yesterday.
Second-quarter growth compared with the 1.2 percent median forecast in a Bloomberg News survey of 15 economists. The economy contracted 0.1 percent in the second quarter from the first three months. Capital Economics cut its full-year growth forecast to 1 percent from 2 percent.
Li & Fung
Li & Fung Ltd., the world’s biggest supplier of clothes and toys to retailers, plunged in Hong Kong trading by the most since its 1992 listing after slowdowns in U.S. and Europe caused a slump in operating profit. The Hong Kong-based company said that sales growth in the U.S. trailed expectations.
Hong Kong’s benchmark Hang Seng Index dropped 0.7 percent to close at 20,136.12 yesterday, tracking the decline in Asian stocks on worse-than-expected Chinese trade data. The MSCI Asia Pacific Index fell 0.6 percent, halting a four-day advance.
The government’s new full-year growth estimate “is predicated on the assumption that Europe will continue to muddle through and the situation is largely contained,” Government Economist Helen Chan said at a briefing yesterday. “All in all for external trade there is no ground for optimism.”
Hong Kong’s GDP increased 5 percent last year and 7.1 percent in 2010.
The government raised its estimate for first-quarter expansion to 0.7 percent from 0.4 percent. Even so, that was the slowest pace since growth resumed in the last three months of 2009.
Record unemployment and a fiscal crisis in the euro area, faltering expansion in the U.S. and slowing growth in China have damped global trade and hurt Hong Kong’s economy.
The city’s imports and exports in June were below all forecasts in analyst surveys. Overseas sales unexpectedly fell 4.8 percent from a year earlier and imports slipped 2.9 percent, a July 24 government report showed.
China COSCO Holdings Co., the country’s largest listed shipping company, warned its first-half loss probably widened by more than 50 percent, according to a statement to the Hong Kong stock exchange on July 27. The fleet operator cited a “weak” global economy, slowing growth in China and excess capacity that pulled down shipping rates.
“Amid mounting headwinds to the global economy, the external environment would thus remain difficult and continue to overshadow Hong Kong’s export outlook in the near term,” the government said in yesterday’s statement. At the same time, policy easing in Asian economies including China should “hopefully render some support to the region’s demand,” it said.
If external trade improves faster than expected “there is a chance we’ll reach 2 percent” growth this year, Chan said at the briefing.
While trade was a drag on the economy in the second quarter, “the domestic sector was still relatively resilient, thereby providing a buffer to overall economic performance,” the government said.
Private consumption expenditure rose 3.7 percent in real terms in the second quarter from a year earlier due to higher incomes and “stable job conditions,” while investment spending gained 5.7 percent, boosted by a pickup in private-sector construction and public sector infrastructure, the government said.
“The private sector has held up despite feeble mainland demand,” said Donna Kwok, a Hong Kong-based economist at HSBC Holdings Plc. “The slight slide in sequential growth does show a bit of stress in the economy.”
Slowing expansion in China is affecting purchases of luxury items by mainland tourists. While the volume of retail sales rose 8.5 percent in June from a year earlier, sales of jewelry, watches and clocks fell for the second month.
Stanley Lau, managing director of Global Timepieces Ltd., which has six branches in districts such as Tsim Sha Tsui and Mong Kok, said mainland Chinese customers are cutting spending and businessmen don’t need as many luxury watches to give out as gifts.