Hong Kong’s economy shrank in the first quarter from the final quarter 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.
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 jewellery 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 4.21mn in March. Mainland visitors, which accounted for 72% of the total, fell 6.9% to 3.02mn. 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.
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.