Hong Kong’s Economy Unexpectedly Contracts in First Quarter

  • Falling retail sales, weakening property weighing on growth
  • Sentiment hurt by sluggish global environment, government says

Cars are seen using headlights during the day as a storm pummels Hong Kong. Gross domestic product contracted 0.4 percent in the three months through March from the previous quarter, the government said in a statement Friday.

Photographer: Philippe Lopez/AFP via Getty Images

Hong Kong’s economy unexpectedly contracted in the first quarter as falling retail sales and a weakening property market weigh on the city.

Gross domestic product fell 0.4 percent in the three months through March from the previous quarter, the government said in a statement Friday, compared with the median estimate for 0.1 percent growth in a Bloomberg News survey. From a year earlier, the economy expanded 0.8 percent, less than half the pace in October through December.

Hong Kong’s retail sales fell for a thirteenth straight month in March, the longest stretch since 1999, as mainland Chinese tourists continued to stay away. Chinese visitors are projected to fall 3.2 percent for the year, according to the Hong Kong Tourism Board, with average spending dropping 4 percent.

"At least over the next five to six months, we don’t see any positive growth driver that can help lift GDP growth substantially," said Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. 

ANZ took a hatchet to its 2016 GDP growth forecast, taking it to 1.2 percent from a previous prediction of 2.2 percent. The government kept its own projection for the year, for a range of 1 percent to 2 percent growth.

"The external environment deteriorated during the quarter, characterized by subdued global growth and sharp gyrations in global financial and monetary conditions, leading to a deeper setback in both goods and services trade," the government said. "The domestic sector also lost some momentum, as the weak global outlook with rising downside risks affected local economic sentiment."

Modest Growth

"Global economic growth is likely to remain modest in the near term, with risks still tilted towards the downside," the government said. "The uncertain global economic outlook and local asset market fluctuations may continue to impinge on economic sentiment."

Hong Kong property sales tumbled to a 25-year low in February as prices continued to slide. The number of the city’s homeowners with apartments worth less than their mortgages soared 15 times in the first quarter, according to the Hong Kong Monetary Authority.

Goldman Sachs Group Inc. sees home prices falling 20 percent through 2018, mainly driven by a potential 150 basis points to 200 basis points increase in interest rates and the limited near-term prospect of any loosening of government cooling measures, according to analyst Justin Kwok.

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