Hong Kong May Emerge From Recession as Trade Improves

By Sophie Leung

Aug. 14 (Bloomberg) -- Hong Kong probably emerged from its worst recession since at least 1990 in the second quarter as a recovery in mainland China bolstered exports.

Gross domestic product rose 1.2 percent from the previous three months, snapping a year of declines, according to the median estimate in a Bloomberg News survey. All seven economists forecast an expansion. The government is due to announce the figure at 4:30 p.m. today.

The Hang Seng Index has climbed 84 percent from this year’s low in March as China’s record lending and 4 trillion yuan ($585 billion) stimulus package help the city, which is a hub for trade and finance. Across Asia-Pacific, South Korea and Australia have bounced back after economic contractions and Singapore has climbed out of a recession as the worst global slump since the Great Depression eases.

“Hong Kong is riding on China’s recovery and may return to year-on-year growth in the fourth quarter,” said Kelvin Lau, an economist at Standard Chartered Plc in Hong Kong.

The city’s economy may have declined 5.3 percent in the second quarter from a year earlier, after a 7.8 percent drop in the previous three months, economists’ forecasts show. The government began releasing quarter-on-quarter figures in 1990.

Billionaire Li Ka-shing, Hong Kong’s richest man, said yesterday that “the worst is over” for the global economy, after his companies, Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd., posted better-than-estimated first-half earnings.

‘Turning Point’

“It’s too optimistic to say the global economy has reached a turning point,” Li added. “The degree of decline has shrunk but that doesn’t mean it has stopped shrinking.”

Germany and France unexpectedly emerged from recessions in the second quarter, according to reports yesterday, and a Bloomberg survey of users showed confidence in the world economy at a 22-month high in August.

Hong Kong’s exports to China rose in June from a year earlier. Overall, overseas shipments fell by the least in seven months. Retail sales declined at a slower pace as consumer confidence improved.

“Hong Kong is showing positive and encouraging signs of a faster-than-expected recovery,” said Tao Dong, chief Asia- Pacific economist at Credit Suisse AG in Hong Kong. “Whether the recovery can be sustained depends on external factors.”

Stimulus Spending

The city’s government will raise today its forecast for full-year GDP to a contraction of between 3 percent and 5.5 percent, Sing Tao Daily reported yesterday, without saying where it got the information. Financial Secretary John Tsang’s current estimate is for a decline of between 5.5 percent and 6.5 percent.

The government has allocated HK$87.6 billion ($11.3 billion), or about 5.2 percent of GDP, since 2008 for stimulus ranging from tax cuts to rent subsidies.

Chief executive Donald Tsang is unlikely to announce more relief measures in his October policy address, the South China Morning Post reported Aug. 11, citing people it didn’t identify.

“The need and urgency for fiscal stimulus has decreased,” said Standard Chartered’s Lau, who said policy makers may need to focus on preventing bubbles in stocks and property as money flows into the city, including from China’s record lending.

Hong Kong home prices may rise 32 percent by the end of 2010 on ample liquidity and low interest rates, UBS AG said last month. The Hang Seng Property Index, which tracks six of the city’s biggest developers, rose 56 percent this year, outpacing the 45 percent gain in the overall index.

Besides the fragility of the global economy, Hong Kong’s recovery faces challenges including a jobless rate at a three- year high of 5.4 percent. Swine flu also crimped tourist arrivals and spending during the quarter.

Lifestyle International Holdings Ltd., the operator of Hong Kong’s Sogo stores, said this month that consumers will be “very conservative about spending” for the rest of the year and subway operator MTR Corp. called the economic outlook “challenging.”

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net