Hong Kong May Extend Its Recovery With 1.9% Growth in Quarter

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Bloomberg Hong Kong’s economy probably grew for a second straight quarter, cementing the city’s recovery from its worst slump since the Asian financial crisis. Gross domestic product rose a seasonally adjusted 1.9 percent in the three months ending Sept. 30 from the previous quarter, according to the median estimate in a Bloomberg News survey of eight economists. The figure is due at 4:30 p.m. today. The gain was 3.3 percent in the second quarter. Financial Secretary John Tsang said in Singapore yesterday that third-quarter data would show “further improvements,” citing the effect of HK$87.6 billion ($11 billion) of stimulus spending. The International Monetary Fund said Nov. 3 that the city may face “a sharp run-up” in prices for property and financial assets, underscoring the risk that asset bubbles could derail a recovery. “Asset-price bubbles pose one of the greatest risks for Hong Kong,” said Irina Fan, senior economist at Hang Seng Bank Ltd. in Hong Kong, adding that stock and property gains had been driven by extra liquidity in the financial system. While the Hang Seng Index has nearly doubled from this year’s low in March, the city’s recovery remains fragile and the government should maintain fiscal stimulus measures into next year, according to the IMF. It forecasts a 5 percent expansion next year after a 2 percent decline in 2009. Hong Kong’s economy may have contracted 1.4 percent in the third quarter from a year earlier, after a 3.8 percent drop in the previous three months, the economists’ forecasts show. Drag on Growth Retail sales grew for the first time in eight months in September as unemployment fell from a four-year high. Exports remain a drag on growth, falling 14.3 percent in the third quarter from a year earlier, after a 12.9 percent drop in the second quarter. Declines moderated after the first quarter, when shipments plunged by the most in half a century, as global demand started to stabilize. Money spilling into Hong Kong from unprecedented lending under China’s stimulus program has flowed into property and stocks and boosted consumer sentiment and spending, said Brian Jackson, a Hong Kong-based strategist on emerging markets at Royal Bank of Canada. Henderson Land Development Co., a company controlled by billionaire Lee Shau-kee, last month sold a duplex apartment for HK$439 million ($57 million), calling the price a record per square foot. The government has tightened down-payment requirements for luxury homes and Chief Executive Donald Tsang has warned that a real-estate bubble is possible. China’s Recovery China’s demand has put a floor under Hong Kong’s exports as the world’s fastest-growing major economy rebounds from the global crisis. In September, the city’s shipments to the mainland grew 3.4 percent from a year earlier, in contrast with a 27.8 percent plunge in exports to the U.S. In the stock market, two of the three companies that account for the biggest share of this year’s gains in the benchmark index are mainland banks: China Construction Bank Corp. and Industrial & Commercial Bank of China Ltd. The third is HSBC Holdings Plc. “The chances of Hong Kong sustaining its recovery going forward are highly dependent on strong growth remaining in place on the mainland,” Jackson said. Hong Kong climbed out of its yearlong recession in the second quarter of this year. To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net This e-mail address is being protected from spambots. You need JavaScript enabled to view it