Hong Kong GDP Shrinks by Most Since 1990 on Exports
Hong Kong’s economy shrank by the most since at least 1990 as exports tumbled and unemployment climbed, increasing pressure on the government to spend more to revive growth.
Gross domestic product shrank a seasonally adjusted 4.3 percent in the first quarter from the previous three months, the government said today at a press briefing. It forecast a full- year contraction of as much as 6.5 percent, which would be the biggest decline since data began in 1962.
The worst financial crisis since the Great Depression has choked off demand for Chinese exports shipped through Hong Kong. Financial Secretary John Tsang said last month that he will take more measures to spur growth if necessary after cutting taxes, suspending property rates and boosting infrastructure spending.
“Political pressures are now building and a supplementary budget now looks very likely by early June, mainly through more temporary tax cuts and cash subsidies,” said Kevin Lai, senior economist at Daiwa Institute of Research in Hong Kong.
The fourth straight quarterly contraction, after a 1.9 percent drop in the last three months of 2008, was the biggest since Bloomberg data began in 1990. The median estimate of 4 economists surveyed by Bloomberg News was for a 2.6 percent decline.
On a year-on-year basis, gross domestic product fell 7.8 percent, after dropping 2.6 percent in the fourth quarter, the government said.
Bleaker Forecast
Hong Kong’s economy will probably shrink 5.5 percent to 6.5 percent in 2009 and inflation will likely be 1 percent, according to the government forecast published today. That compares with February’s estimate of a 2 percent to 3 percent contraction and 1.6 percent inflation.
The government’s efforts to counter the slump include spending HK$1.6 billion ($206 million) on a program aimed at creating 62,000 jobs and internships. Chief Executive Donald Tsang pledged this week an extra round of “relief measures” within a month.
Hong Kong’s fiscal reserves stood at HK$494.4 billion at the end of March and the city had a HK$1.4 billion budget surplus for the year ended March 31, rather than the deficit the government had forecast.
“Given the strength of the fiscal reserves, Hong Kong has a lot of bullets and can achieve a faster economic recovery,” said Lai high risk personal loans.
Merchandise exports fell 22.7 percent in the first quarter from a year earlier after dropping 4.9 percent in the fourth quarter, the government said today.
Flu Threat
“Hong Kong had the sharpest drop in exports since the 1950s, which also weighed heavily on local employment and consumer spending,” said Joanne Yim, chief economist at Hang Seng Bank Ltd. in Hong Kong. “The recent outbreak of the swine flu also warrants close monitoring.”
The authorities have reported two confirmed human cases of H1N1 swine flu this month.
Household consumption declined 5.5 percent in the first quarter from a year earlier after falling 4.1 percent in the fourth quarter, while business investment fell 12.6 percent after dropping 17.8 percent, the government said.
The jobless rate climbed to 5.2 percent in the three months to March 30, the highest level in three years. It has risen every month since September.
Cathay Pacific
Cathay Pacific Airways Ltd., Hong Kong’s largest carrier has cut passenger capacity and asked staff to take unpaid leave on weaker demand for travel. Banks such as HSBC Holdings Plc, UBS AG and Nomura Holdings Inc. have slashed jobs across Asia, including in Hong Kong.
The 1,872 bankruptcy petitions filed in March were the most since SARS, according to the Official Receiver’s Office.
Still, investors are betting that a stimulus-driven revival of the Chinese economy may help Hong Kong to make a comeback. The Hang Seng Index has gained about 17 percent this year, after a 48 percent decline in 2008.
Hong Kong’s slump contrasts with Indonesia’s report today of a 4.4 percent increase in gross domestic product in the first quarter from a year earlier. Indonesia has been less affected than its Asian neighbors by the global slump because it isn’t as reliant on exports. Singapore’s economy shrank the most since at least 1975 in the first quarter.