HONG KONG: The city's sagging economy is unlikely to hit bottom until next year, as the city's small and open economy can not escape the negative impact of a synchronized global recession, market players and academics say.

"It is still too early to conclude that Hong Kong's economy has bottomed out," Alan Siu, director of the APEC Study Center at the University of Hong Kong (HKU), said at a press briefing to release the center's quarterly economic forecast.

The center now estimates that Hong Kong's real GDP has contracted 6.4 percent in the first quarter as the slumping global economy took its toll on the territory's trading sector, property market and consumption, the three main pillars that drove local economic growth in the past.

"Hong Kong's real GDP started to fall in the final quarter of last year, and the downward adjustment is expected to continue," Richard Wong, an economic professor at HKU said at the same press briefing.

He expects the local economy to shrink 5.1 percent year-on-year in the second quarter. "The contraction in output is due to the sharp fall in both external and domestic demand," he said.

The center did not provide a forecast for the third and fourth quarter but expected the economy to contract 3 percent for whole year 2009, following a 2.5 percent growth last year.

A plunge in retirement savings and the continued deterioration in the labor market have prompted Hong Kong households to save more while weakening overseas demand amid the global economic downturn depressed trading activity, the report said.

The volume of retail sales is forecast to fall by 0.1 percent in the first quarter and to further drop by 1.5 percent in the second quarter while total exports is estimated to drop 24.5 percent in the first quarter and is forecast to fall 21.1 percent in the current quarter, it said.

The center also expects the labor market to deteriorate further in the coming months, forecasting a jobless rate of 6.0 percent for the current quarter, up from an estimated 5.3 percent rate for the first quarter.

Meanwhile, Barclays Capital, the investment banking unit of global financial group Barclays Bank Plc, has a more bearish outlook for the Hong Kong economy, citing also dim outlooks for external and domestic demand.

The investment bank lowered its full-year economic growth forecast for Hong Kong to -3.5 percent from the previous -3.0 percent.

"The global outlook suggests external demand for Hong Kong's good and services is likely to remain weak in 2009," Peng Wen-sheng, head of China research at Barclays Capital, said.

He also expects private consumption to be constrained by rising unemployment, lower household income and weak asset prices.

He noted that the city's jobless rate has risen continuously to 5.0 percent in February from 3.2 percent last August and is expected to rise over 6 percent by the end of this year.

China Daily

(HK Edition 04/03/2009 page16)