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Hong Kong Dodges Recession As Europe’s Crisis Slows Exports
Perspective | 18 November 2011

Hong Kong’s economy grew 0.1% in the third quarter from the previous three months as low unemployment and tourists from China boosted consumption while Europe’s crisis dragged on exports.

The figure released by the government compared with a revised 0.4% contraction in the three months ended June and the median estimate of no change in a Bloomberg News survey of 15 economists.

Asian policy makers are weighing steps to support growth as Europe’s debt crisis threatens to engulf Italy and trigger a global slump. The GDP number showed Hong Kong skirting a technical recession, defined as two straight quarters of contraction. Chief Executive Donald Tsang warned that there’s a 50% chance the global economy will shrink next year.

“A persistent stall of the economy will prompt the government to pledge another round of fiscal relief measures in February’s budget,” said Raymond Yeung, an economist at Australia & New Zealand Banking Group in Hong Kong.

The economy grew 4.3% from a year earlier, down from a revised 5.3% gain in April-through-June, the government said. Officials lowered their estimate for the full-year expansion to 5% from a range of 5% to 6% in an August estimate.

‘No Silver Bullet’

“There may be some fiscal measures, like tax rebates in the next budget, as a government response to the slowdown,” said Joseph Lau, an economist at Societe Generale SA in Hong Kong. “However there’s no silver bullet here. It will largely be a case of riding this out.”

The macro risk for Hong Kong has shifted to growth from inflation, government economist Helen Chan said at a press briefing in the city. In 2012, the expansion may be as little as 2%, Tsang said 8 November.

Exports declined in September for the first time in almost two years and the government said that the trade outlook is “bleak”. Inflation may be 5.2% for the full year, down from an August estimate of 5.4%, it said, citing smaller gains in global food and commodity prices.

In contrast, retail sales have been bouyant, with 11 million tourist arrivals in the third quarter. The jobless rate stayed at 3.2% for the three months ended September, a 13-year low. Private consumption rose 8.8% in the third quarter from a year earlier and business investment climbed 10.2%.

Flood Of Tourists

“Mainland Chinese tourists are flooding our store and the mall and so we are recruiting more sales people right now,” said Leung Chun-kit, 31, a salesman at Golden Computer Accessories, a retail shop in Wanchai. “I don’t really feel any impact from the European crisis – that doesn’t matter to us at all.”

The threat of a global slowdown is intensifying downward risks in Hong Kong’s home market, Financial Secretary John Tsang said 27 October. Home sales halved last month from a year earlier to HK$22.5 billion (US$2.9 billion), after the government raised minimum down-payment requirements and imposed taxes on some transactions to curb prices that surged more than 70% since the start of 2009.

Side-effects of global market volatility include cancelled share offerings in the city. Sany Heavy Industry Co., the construction-equipment maker backed by China’s richest man Liang Wengen, postponed in September a US$3.3 billion stock sale. Hong Kong’s benchmark Hang Seng Index index has tumbled 17% this year.

“Some Shocks”

Hong Kong’s economy may face “some shocks” in coming quarters as global growth is losing traction, Chief Executive Tsang told reporters during the Asia-Pacific Economic Cooperation forum in Honolulu.

“Although Hong Kong’s economy is now fundamentally sound, we are facing an uncertain outlook,” said Tsang. “The government will roll out measures to support small- and medium- sized companies if needed.”

Chinese president Hu Jintao urged Hong Kong’s government to ensure long-term economic stability and prosperity during a meeting with Tsang at the APEC forum, the official Xinhua News Agency reported. Hu said the central government has been unwavering and consistent in supporting Hong Kong’s economy, according to Xinhua.

Asian Response

Across Asia, officials are girding for any deterioration in the global economy. China’s lending rebounded in October according to data released on 11 November, signalling that officials may be loosening limits on credit growth. Indonesia has cut benchmark interest rates for the second straight month.

Malaysia left interest rates unchanged for a third straight meeting. Bank Negara Malaysia kept the benchmark overnight policy rate at 3%, as predicted by 18 of 19 economists surveyed by Bloomberg News.

Meanwhile, recent data showed Hong Kong’s merchandise exports fell 2.2% in the third quarter from a year earlier.

“The negative impacts on the global economy caused by the Eurozone sovereign-debt crisis and the ensuing global financial turbulence have intensified towards the end of the third quarter, and are likely to remain pronounced,” the government said in a statement. “While the Eurozone debt problem will remain a key threat to the global economic outlook, the weakness in the US economy also warrants concern.”

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