Hong Kong’s economy grew 3.3% in the second quarter on a seasonally adjusted quarter-to-quarter comparison.

Following a sharp year-on-year contraction of 7.8% in the first quarter of 2009, real gross domestic product (GDP) registered a smaller decline of 3.8% in the second quarter. On a seasonally adjusted quarter-to-quarter comparison, the economy resumed growth at 3.3% in the second quarter, ending the contraction of the previous four quarters. The Hong Kong Special Administrative Region Government released the preliminary second-quarter GDP figures August 14.

“I am glad to see the economy resuming growth in the second quarter on a quarterly basis, reversing the contraction in the preceding four quarters,” Hong Kong Financial Secretary John C. Tsang noted.

Thanks to strong and forceful stimulus measures, the Mainland economy regained faster growth momentum in the second quarter, thereby benefiting Hong Kong, Mr. Tsang said. Equally important was the confidence exhibited by Hong Kong residents, whose consumption has remained relatively stable, despite the tremendous shocks of the global financial tsunami.

“I am glad that the strategy of the government to stabilize the financial system, support enterprises and preserve employment has yielded positive results in supporting the economy and helping to slow the rise in unemployment,” he said.
“We are seeing encouraging signs of an economic recovery, and the economy will hopefully improve further in the second half of the year. For 2009 as a whole, the forecast for the economy is now revised upward to a contraction of 3.5% to 4.5%.”

However, Mr. Tsang pointed out, “As the global economy is still subject to uncertainties, we cannot afford to be complacent. While continuing with the strategy of stabilizing the financial system, supporting enterprises and preserving employment, the government will remain vigilant and make timely moves in response to the evolving external situation.”

Improving external environment

With the external environment showing some improvement, Hong Kong’s total exports of goods declined notably less year-on-year in the second quarter, and actually picked up strongly from the first quarter on a seasonally adjusted basis. Hong Kong’s export performance continued to fare better than many other Asian economies.  

Exports of services also showed a smaller year-on-year rate of decline in the second quarter, helped by the rebound in financial market activities and stabilization in the global trading environment. Concerns about the spread of H1N1 (“swine”) flu, however, hampered inbound tourism.

Local consumer sentiments recovered during the quarter under the combined effects of more stable employment conditions, a rebound in asset markets and the boost from various government relief measures. The year-on-year decline in private consumption expenditures tapered significantly in the second quarter, with a distinct pick-up on a quarter-to-quarter basis. Nevertheless, business sentiments remained cautious given the still-uncertain global economic outlook, leading to a further notable year-on-year decline in investment.

The labor market displayed considerable resilience. In tandem with the relative improvement in the economy, total employment stabilized in the second quarter, thereby helping to slow the rise in unemployment. The seasonally adjusted unemployment rate was 5.4%.

As a result of strong policy actions taken by governments around the world, the global economy is finally taking a breather after a dismal first quarter. The Mainland economy regained some strength in the second quarter, thereby providing an anchor for the region. Many other Asian economies also showed relative improvement.  With the global economy appearing to bottom out and the Mainland economy back to faster growth, Hong Kong's external sector is poised for further improvement in the second half of 2009.

Locally, consumption should continue to benefit from slower job loss, low interest rates and government relief packages. Nevertheless, business sentiments, though somewhat better than at the beginning of the year, were still cautious. Private sector investment is likely to remain depressed, but public sector investment should pick up further, reflecting government efforts to mitigate the impact of the global downturn.

With the stronger-than-expected rebound in the second quarter, the bottoming out in the global economy and government relief measures, GDP for 2009 as a whole is now forecast to contract by 3.5% to 4.5% in real terms, an improvement from the May forecast decline of 5.5% to 6.5%.

While Hong Kong is seeing light at the end of the tunnel, the economic outlook remains highly uncertain. For a small open economy like Hong Kong, a sustained and solid recovery still hinges on a visible improvement in the external environment. The impact of H1N1 flu is another risk factor. Locally, asset market gyrations could occur if the global recovery process turns out to be unsteady and weaker than expected. Also, the strength of recovery in the domestic sector will hinge on the evolving employment and income situation. In short, the recovery path ahead can still be rather bumpy.

On the price front, underlying consumer price inflation eased to 1.2% in the second quarter, as both local and external price pressures were virtually absent amid the global recession. With import prices falling and local costs also receding, consumer price inflation may turn slightly negative in the coming months. Taking into account the first half of 2009, underlying consumer price inflation for the year is still forecast at 0.9%. The headline consumer price inflation for 2009 is forecast at 0.5%, revised downward from the 1% predicted in May.