World Economy

HK Closer to Recession

HK Closer to Recession
HK Closer to Recession

Hong Kong’s economy shrank in the first quarter from the final three months `of 2015, hit by falling exports and weak consumer spending, with the risk that momentum will slow further.

On the doorstep of the world’s second-largest economy, Hong Kong has been buffeted by China’s slowdown. A slump in visitors from the mainland, weak retail sales and falling asset prices have combined to put the economy on the verge of recession, Yahoo reported.

The trade-dependent economy contracted 0.4% in the first quarter, the first contraction in nearly two years.

On an annual basis, growth was just 0.8% in the first quarter, its weakest pace in four years. It was worse than economists’ expectations for 1.48% growth and less than half the pace of the fourth quarter.

“We think in the second quarter, or even the second half, there should be even more of a slowdown,” said Kevin Lai, senior economist at Daiwa Capital Markets in Hong Kong.

“I am also worried that the whole macro situation in Hong Kong looks like we are not any better than 1997 and 1998,” he said referring to the period before the Asian financial crisis.

Hong Kong’s economy grew 2.4% in 2015, about half the pace of 2011, as China’s slowdown and a weaker yuan curbed Chinese spending, while a volatile stock market also hit domestic consumption.

A string of retailers from fashion to jewelry firms have posted grim performance figures, with retail sales contracting for the 12th successive month in March.

Hong Kong’s tourist arrivals, which dropped 20.5% in February, slid 4.3% from a year earlier to 4.21 million in March. Mainland visitors, which accounted for 72% of the total, fell 6.9% to 3.02 million.

Cracks are also widening in the city’s real estate market, one of the most expensive in the world, and accounting for nearly a fifth of economic output.

Apartment prices are down by 12% from a September high and investment banks predict a further 20% decline in coming months.

  Turnaround Unlikely Soon

While the city’s leaders have announced a range of relief measures in its March budget, a turnaround in economic activity is unlikely in the near term given weak global growth and Hong Kong’s strong links to a slowing Chinese economy, analysts say.

“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.”

“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% from a previous prediction of 2.2%. The government kept its own projection for the year, for a range of 1% to 2% growth.

  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% 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.