Hong Kong expanded less-than-expected in the second quarter as the worsening debt crisis in Europe and falling demand elsewhere continue to weigh on the trade-dependent economy's exports. The modest growth prompted the government to cut the growth forecast for the full-year due to increasing downside risks in the global economy.
Gross domestic product (GDP) grew 1.1 percent annually in the second quarter, slower than the 1.2 percent growth economists had forecast. The government lowered the outlook for Hong Kong's economic growth for 2012 to 1-2 percent from 1-3 percent seen in May, citing the increasing downside risks on the external front.
Growth, however, quickened from the first quarter's revised 0.7 percent. Yet, it was the weakest pace since the economy returned to the growth path in the fourth quarter of 2009.
Sequentially, GDP slipped 0.1 percent during the three-month period, reversing the previous quarter's 0.6 percent growth, revised up from 0.4 percent, the Census and Statistics Department said. It was the first contraction since the second quarter of 2011, when GDP fell 0.4 percent.
"With the crisis in the eurozone set to intensify, we expect global weakness to continue to depress Hong Kong's export sector, making a strong rebound in the economy unlikely," Capital Economics Asia Economist Gareth Leather said.
Capital Economics now expects the Hong Kong economy to expand 1 percent, which is lower than the 2 percent forecast earlier. The city-state is forecast to grow 2 percent next year. The policy easing underway in China is expected to help the mainland economy recover in the second half of the year.
"However, the recovery is likely to be very weak, and is unlikely to provide much of a boost to Hong Kong," Leather said.
Merchandise exports posted a 0.4 percent year-on-year decline, even against a relatively low base of comparison in the same period of 2011. The decline in the shipments to EU worsened further. Leather said policy stimulus is unlikely to be able to fully offset the impact of weak export demand.
Meanwhile, the domestic sector remained relatively resilient during the second quarter, with private consumption expenditure rising 3.7 percent on the back of stable job conditions and improved incomes. Investment spending grew further by 5.7 percent helped by a pick-up in private sector construction activity and public sector infrastructure works.
Total employment reached another record high during the quarter and unemployment rate falling to 3.2 percent.
The forecast for headline and underlying consumer price inflation were revised upwards to 3.7 percent and 4.3 percent respectively from 3.5 percent and 4 percent.
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