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Government Economist Helen Chan presents the Third Quarter Economic Report 2008, noting that Hong Kong’s economic growth slowed notably in the third quarter, with GDP rising just 1.7%. |
Hong Kong’s economic growth slowed notably in the third quarter of 2008, with GDP rising 1.7% year-on-year after a 4.2% increase in the second quarter, according to the Third Quarter Economic Report 2008 released by the Hong Kong Special Administrative Region Government.
Government Economist Helen Chan said the external sector slackened amid faltering global demand and as domestic demand this fall was slammed by the global financial tsunami that caused significant jitters in local asset markets.
Merchandise exports slackened to only modest growth in the third quarter, the worst performance since early 2002. While the U.S. market continued to pose the most significant drag, exports to other markets also suffered as the impact of the global downturn increasingly set in.
Hong Kong’s service exports still recorded solid growth in the third quarter, though moderated from the second quarter. This was partially affected by a temporary fall-off in inbound tourism during the Olympic Games. But more importantly, the slowdown was due to a further deceleration in exports of financial services amid global financial distress.
Consumption spending still remained fairly firm in July and August, but slackened distinctly in September as financial turmoil in the United States escalated into a full-blown global financial disaster, causing the local stock market to plummet markedly. For the third quarter as a whole, consumer spending recorded only marginal growth against an exceptionally high base a year ago, when consumption grew 10.6%.
Overall investment spending still recorded modest growth in the third quarter. However, in the more recent period, amid the global financial crisis and tightened credit availability, companies turned more cautious in hiring and making new investments.
The seasonally adjusted unemployment rate rose marginally to a still relatively low 3.4% in the third quarter. Along with the unsettled financial situation around the world, job prospects in Hong Kong have dimmed.
Headline consumer price inflation fell notably in the third quarter to 4.6%, mainly reflecting the favorable effects of the government’s one-off relief measures. Underlying inflation stabilized somewhat after July, as the tapering in food inflation offset the increase in private housing costs. CPI inflation notched down from 6.3% in both July and August to 6.1% in September, averaging 6.3% in the third quarter.
 The financial turbulence, which began in August 2007 with roots in the U.S. sub-prime mortgage fiasco, erupted into a full-blown global crisis causing significant clogs to financial markets around the world. The credit crunch that ensued exacerbated the already rapidly faltering global economy. After a series of unprecedented measures taken by various governments and central banks in the advanced economies, there are signs that stability is gradually returning to the global financial markets. However, the credit markets remain unusually tight and will take time to return to more normal functioning. The risk of a more prolonged global economic downturn has increased.
Many advanced economies, including the United States and European Union, already are in recession. The export-dependent economies in Asia all will be affected to different extents. Amid such an uncertain and difficult external environment, Hong Kong’s export performance is likely to remain rather lackluster in the near term.
Domestic demand likewise is expected to slow in the period ahead. The substantial fall-off in the stock market, triggered by the global stock market crash and the spillover to the property market, coupled with fewer job prospects, will continue to restrain consumers' propensity to spend. Businesses also are likely to turn more cautious in making machinery and equipment acquisitions.
Taking into account the GDP growth of 4.3% in the first three quarters of the year, economic growth for 2008 as a whole is forecast at 3% to 3.5%, revised down from the earlier forecast of 4% to 5%. The economy is likely to be rather subdued the rest of this year.
With global commodity prices retreating, especially those of food and oil, and with the rebound of the U.S. dollar since July, inflationary pressures from the external front are receding. The expected slowdown in the Hong Kong economy will also entail lighter pressures from the domestic economy. But the earlier surges in private residential rentals might continue to feed through to consumer price inflation in the coming months. With the favorable effects of the government’s relief measures continuing the rest of the year, the forecast headline consumer price inflation for 2008 as a whole remains unchanged at 4.2%. Netting out the effects of government measures, the forecast underlying inflation rate for 2008 is also maintained at 5.5%.
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