Hong Kong's economy forecast to post mild Q2 growth, outlook gloomy

[HONG KONG] Hong Kong's economy is expected to have expanded slightly in the second quarter helped by consumption, but the outlook in coming months will be dampened by a slowdown in China, a drop in mainland tourists to the city and weak retail sales.

Prospects for the Asian financial centre could be further compounded if a surprise Chinese yuan devaluation this week puts a deeper dent in tourists' spending power.

Economic growth for the April to June quarter is forecast to have expanded 2.1 per cent, according to the median forecast of six economists with year-on-year estimates.

The economy grew 2.1 per cent in the first quarter from a year earlier and a seasonally adjusted 0.4 per cent from the fourth quarter, propped up by private and public spending.

Hong Kong has become increasingly dependent on China to help spur growth, with mainland Chinese accounting for 78 per cent of the 60.8 million tourists who visited the city last year. The number of Chinese visitors has dropped this year, hurt in part by an anti-corruption campaign launched by Beijing that targets lavish spending and street protests against mainland Chinese. "Exports are not performing very well while consumption from mainland tourists in Hong Kong is weakening. We may see slower growth in the second half of the year," said Paul Tang, chief economist at Bank of East Asia.

Mr Tang added that he believed the devaluation of the yuan will curb mainland Chinese visitors' desire to come to Hong Kong and forecast growth of 2 per cent for the full year. In February, the government estimated GDP growth of 1-3 per cent for 2015.

Hong Kong's economy is heavily dependent on trade, and its exports and imports are predominantly re-exports to and from mainland China. The GDP data due on Friday, comes days after China posted a surprise 8.3 per cent drop in July exports.

Slower growth could pile further pressure on Hong Kong leader Leung Chun-ying, less than a year after pro-democracy protests paralysed parts of the city, hit retail sales and raised concerns over economic stability.

Mr Leung and Beijing's top official in the city both recently stressed the need for the financial hub to focus on economic stability.

Hong Kong's leader said this week in an interview with China's official news agency Xinhua that it was time for the former British colony to scrap what he described as its outdated "positive non-intervention" policy.

The government needed to take a more pro-active role in tackling economic and livelihood issues, he added.

The economy is facing challenges even before an expected interest rate hike by the Federal Reserve this year, which is forecast to add further downside risks.

REUTERS