Hong Kong’s export-led economy, a barometer of global growth, is sinking into a recession that is likely to last for at least a year, Daiwa Capital Markets economist Kevin Lai (賴志文) said.
Of nine economists in a Bloomberg News survey, Lai came closest to predicting a 0.5 percent contraction in the territory’s economy in the second quarter. Only two of the analysts expected GDP to decline from the previous three months. The government released the data on Friday.
“Global demand is really weak and we expect the US and Europe will see a sharp slowdown, or near-zero growth, next year,” Lai said in a telephone interview in the territory yesterday. “A recession is a reality for Hong Kong.”
An 11 percent decline in Hong Kong’s merchandise exports in the second quarter from the previous three months highlights the -weakness, Lai said.
In a note, he described the economy as the world’s “most externally-driven” and said that a slump has “grave implications.”
The Hang Seng Index climbed 2.9 percent as of 3:12pm yesterday, trimming its decline since Aug. 1 to about 11 percent.
The technical definition of a recession is two straight quarters of contraction.
Lai predicted that Hong Kong’s economy would contract 1 percent over the 12 months ending on March 31. That compares with a decline of 7.9 percent in the year through the first quarter of 2009, when the global financial crisis hobbled trade.
The world economy is “entering a new danger zone” and international policymakers need to take steps to restore confidence, World Bank president Robert Zoellick said on Sunday in Sydney. A US debt-rating downgrade and a widening European debt crisis triggered a global rout of equities.
Hong Kong’s government maintained a forecast for economic growth of 5 percent to 6 percent for this year on Friday, citing public construction works and “resilient” domestic demand.
In addition, trade will be supported by the strength of Asian economies, with disruptions from Japan’s March earthquake fading, the government said. Lai’s estimate is a 4 percent expansion.
Also in contrast with Lai’s view, HSBC Holdings PLC economist Donna Kwok (郭浩庄) welcomed “a healthy dose of moderation” for a Hong Kong economy that she said had been running hot.
Hong Kong’s economy grew 5.1 percent in April through June from a year earlier, compared with first-quarter growth of 7.5 percent.
“For the rest of this year, we expect the impact of softer Western demand to be countered by continued resilient Asian domestic demand,” Kwok said in a note.
In Hong Kong, there are also signs that the property market is cooling. Home transactions fell to a 30-month low last month, while a land auction last week missed surveyors’ forecasts.
Midland Holdings Ltd and Centaline Property Agency Ltd, the territory’s two biggest real-estate agents, said home prices would decline.