Hong Kong’s economy improved further in the third quarter with real GDP growing 0.4% over the second quarter. The year-on-year decline in GDP in real terms narrowed to 2.4% in the third quarter from 3.6% in the second quarter, according to the Third Quarter Economic Report 2009, released by the Hong Kong Special Administrative Region Government in November.
With both domestic and external sectors likely to show further improvement in the fourth quarter, GDP for 2009 as a whole is now forecast to contract by 3.3% in real terms, up from the forecast drop of 3.5% to 4.5% in August.
Hong Kong Government Economist, Mrs. Helen Chan, said further improvement in the domestic sector offset the drag from weak external demand.
Although the global economy has entered the initial stage of recovery, import demand in the advanced economies remained sluggish and continued to weigh heavily on the exports of Asian economies. Against this backdrop, Hong Kong’s merchandise exports still declined notably year-on-year in the third quarter, although the pace of decline slowed distinctly towards the end of the quarter.
In contrast, exports of services improved more visibly in the third quarter, supported by further revival in financial market activities and a rebound in inbound tourism. Yet trade-related service exports were still weak under the drag of sluggish trade flows.
Local consumer sentiments revived further in the third quarter, as economic prospects got better, the labor market stabilized, Government’s relief measures yielded further results, and asset markets remained supportive. Private consumption expenditure, having fallen for four consecutive quarters, bottomed out in the third quarter on a year-on-year basis.
Business sentiments turned up distinctly, with overall investment reverting to a small increase after three consecutive quarters of double-digit decline.
The labor market showed initial signs of improvement after a period of successive worsening since late 2008. The seasonally adjusted unemployment rate fell slightly to 5.3% in the third quarter, the first decline since the onset of the global financial crisis.
Following the exceptionally large stimulus measures by governments and central banks to shore up demand and stabilize the financial markets, the global economy is finally expanding again.
Despite this, labor markets in many advanced economies continued to worsen. These economies are still confronted by impaired financial systems and an on-going adjustment process to deleverage and rebuild savings. In Asia, the improvement has been more evident, with the Mainland economy taking the lead in the return to a faster growth path. With global trade flows still notably down as compared to the pre-crisis level, there are indications that orders are gradually coming back in recent months and the onset of a modest global recovery and the restocking process should help Hong Kong’s external trade going forward.
Domestically, local consumer sentiments should continue to be supported by an improving labor market and the cushion rendered by the Government's relief measures.
The results of latest Quarterly Business Tendency Survey conducted by the Census and Statistics Department in September and early October indicated that many large business establishments have turned more upbeat about their near-term business prospects. Public sector investment should continue apace to shore up aggregate demand, as part of the Government’s counter-cyclical strategy in the current global downturn.
Although the downside risks in the external environment seem to have receded for the time being, the global economic outlook in the period ahead remains subject to considerable uncertainties. The clear risk is that the global recovery could stall after the exceptionally fiscal boost begins to fade out. The “toxic assets” in the U.S. and European financial systems and the deleveraging process to restore health in the banking sector are the key drags to the recovery process. Another major risk is the timing and pace of the exit strategies by governments and central banks, and the possible fluctuations in the asset markets they may cause. The potential rise in protectionist sentiment is another concern.
On inflation, both local and external price pressures are virtually absent, as local costs remain contained and as the supply capacity of the global economy still out-runs demand by a sizable margin.
The Underlying Composite CPI went lower by 0.3% in the third quarter from a year earlier, but the underlying deflationary pressure had tended to stabilize towards the end of the quarter on a seasonally adjusted basis. Hence, the deflationary pressure facing the economy has been relatively contained thus far. With the development on the price front largely in line with the earlier expectations, the forecast headline and underlying consumer price inflation rates remain unchanged, at 0.5% and 0.9% respectively for 2009 as a whole.
