Fortune turns against Hong Kong
Bloomberg News Service
HONG KONG — Hong Kong's economy shrank unexpectedly in the second quarter as an export slump deepened and spending by companies and consumers stalled.
Gross domestic product, the broadest measure of an economy, fell 1.7 percent from the previous quarter, seasonally adjusted, while economists expected no change. The government revised first-quarter growth to zero from 0.3 percent, a rate indicating that Hong Kong narrowly escaped recession.
Hong Kong — which had Asia's fastest expansion last year, at 10.5 percent — now is among the worst performers in a region where most economies are shrinking or stalling as overseas demand slumps. The drop prompted Hong Kong's government to cut its 2001 growth forecast to 1 percent from 3 percent.
"The figure was much lower than expected, and it's now very likely Hong Kong will go into recession," said George Leung, a senior economist at HSBC Holdings Plc, who expects 0.4 percent growth this year. "The moderation will be more serious in the third quarter. Trade won't see any improvement."
From a year ago, second-quarter GDP grew 0.5 percent, the smallest gain since the first quarter of 1999, when Hong Kong was in recession. Economists expected a 1 percent expansion, following the first quarter's revised 2.3 percent growth.
Among other Asian nations, Taiwan's economy shrank 2.4 percent last quarter from a year earlier; Singapore's contracted 0.9 percent; Malaysia's annual growth slowed to 0.5 percent from 3.1 percent.
Hong Kong's exports, about half of which are China-made goods on their way to other places, fell 5 percent in the second quarter from the first, more than double the first quarter's decline. The government said it expects shipments to fall 1.1 percent in 2001, cutting an earlier forecast of 3.1 percent growth.
With fewer goods passing through Hong Kong's port, one of the world's busiest, the city's growth has stalled. Last year, exports rose 20 percent.
"It's not a secret that the whole world is experiencing an economic slowdown, and the impact is bad," said Li Ka-shing, Asia's richest man and the chairman of Hutchison Whampoa Ltd., Hong Kong's biggest diversified company. "I don't see the (Hong Kong) economy recovering shortly."
Hutchison's first-half profit fell 77 percent as the value of its mobile phone investments declined and growth at its port unit slowed.
Falling overseas demand forced companies to rein in spending on expansion. Investment spending rose 0.4 percent from the second quarter, compared with an 11.5 percent gain in the first quarter, as purchases of machinery and equipment slowed.
Consumers didn't do their part to keep growth on track. Consumer spending rose 1.1 percent from the first quarter, compared with a 5.9 percent increase in the first three months of the year.
While a 2 1/2 percentage point reduction in interest rates since the beginning of the year gave spending a boost, that was countered by falling property values and growing concern about job losses.
Property values have recovered little since they dropped by more than half during the 1997-98 Asian financial crisis, and slowing economic growth is damping hopes for a rebound.
Cheung Kong (Holdings) Ltd., Hong Kong's biggest property developer, said last month that first-half profit plummeted 76 percent to $538.5 million.
Consumer prices have fallen for almost 2 1/2 years as property rents drop and retailers are forced to slash prices to attract shoppers. The government said at the end of the month that prices will probably fall 1.3 percent this year, more than the 1 percent drop forecast in May.
ASAT Holdings Ltd., Hong Kong's largest chip packager, said it fired about 1,500 employees since April. Pacific Century CyberWorks Ltd., which owns Hong Kong's dominant phone company, said earlier this summer that it would fire 340 Internet employees as it trimmed Web investments.
The jobless rate rose to 4.7 percent in July, a nine-month high, and Hong Kong Chief Executive Tung Chee-hwa said last month that he expects the rate to keep climbing this year.
