Hong Kong's growth seen easing relative to 2004

[HenryTo]

Note the following quote: "Domestic demand and tourism probably remained quite strong in the first quarter, but export growth obviously slowed." The evidence continues to fit in well with my global economic slowdown scenario for the rest of this year. We will continue to monitor this and let our readers know if we start to change our views.
---------------------------------------------------------------------------------
Hong Kong's economy grew in first quarter, but growth easing compared to 2004, analysts say

Hong Kong is expected to release figures Friday showing economic expansion on all fronts in the first quarter, but growth is likely to have eased after a strong recovery last year, analysts say.

"Domestic demand and tourism probably remained quite strong in the first quarter, but export growth obviously slowed," said George Leung, an economist at HSBC.

Economists are concerned the growth slowdown will intensify in coming quarters as global demand eases further and higher local interest rates start to affect domestic demand.

Hong Kong's gross domestic product is expected to have grown 5.7 percent in the first quarter from the year-earlier period, according to a survey of economists by Dow Jones Newswires.

In the fourth quarter last year, the city's GDP expanded 7.1 percent. For all of 2004, it grew 8.1 percent.

Improving job prospects were the key factor for consumers' willingness to spend in the first quarter, DBS Bank strategist Daniel Chan said.

Retail sales in the first quarter rose 8.5 percent, as Hong Kong's unemployment rate dropped to a 41-month low of 5.9 percent during the February-April period from 6.1 percent in January-March.

A 10.8 percent increase in tourist arrivals in the first quarter also underpinned the retail sector.

As the economy continued to expand, corporate investment likely remained strong, Bank of China economist Dai Daohua said.

Robust China trade continued to power the city's export growth, which expanded 10.6 percent on year in the first quarter.

However, the value of exports contracted 0.3 percent in January-March from the previous quarter. The slowing was all the more obvious in the March statistics, with export growth in the month slipping to 3.5 percent from 14.9 percent for the first two months of the year, reflecting easing global demand.

Increasing friction between China and its trade partners could weigh further on Hong Kong's exports, economists said.

A sustained slowdown in trade would be the biggest threat to Hong Kong's overall growth prospects and employment, HSBC's Leung said.

Higher local interest rates are also expected to weigh in coming quarters.

Local banks raised their prime lending rates by 50 basis points last week as liquidity tightened. And further hikes are expected if the U.S. interest rate tightening cycle continues in coming months.

"The impact on big-ticket items such as home sales and car sales is likely to be more significant," said DBS's Chan.

The surveyed analysts' forecasts for Hong Kong's full-year 2005 GDP growth rate centered on 4.5 percent _ at the low end of the government's forecast range of 4.5 percent to 5.5 percent.