Hong Kong's economy contracted 0.1 per cent in the second quarter, reversing the 0.6 per cent quarter-on-quarter growth in the first three months of the year.
The contraction, attributed mainly to the worsening euro debt crisis and slower recovery in the United States, prompted the government to lower its forecast for Hong Kong's economic growth this year to 1 per cent to 2 per cent, down from 1 per cent to 3 per cent.
Government economist Helen Chan, who presented the latest half-yearly economic report yesterday, said Hong Kong had been hit by a dive in exports.
'The negative spillovers from the sluggishness of the advanced economies to Asia have ... turned increasingly visible,' Chan said, 'Amid mounting headwinds to the global economy, the external environment would thus remain difficult and continue to overshadow Hong Kong's export outlook in the near term.'
Total exports of goods dipped by 3.9 per cent in the second quarter, in contrast to the 2.1 per cent growth in the preceding quarter, according to seasonally adjusted figures.
Hong Kong's exports and imports are predominantly re-exports to and from the mainland.
Chan said the economic outlook for the euro zone remained dim. The overall jobless rate across the nations using the common currency was 11.2 per cent, according to June figures. The worst is Spain, where almost one in four people are out of work.
A Hang Seng Bank analysis, released yesterday, also said external demand was the key factor in determining the pace of the recovery for Hong Kong, which is a heavily export-reliant economy.
'Our expectation is for a moderate recession in the euro zone and a sub-par expansion of the US economy in the second half,' said the Hang Seng Bank report. 'It is unlikely we will see visible recovery in our major export markets any time soon.'
But an HSBC analysis was less pessimistic. 'Hong Kong has sufficient domestic oomph to steer clear of recession this year. We retain our forecast for GDP to expand by 3.1 per cent this year and 5.3 per cent in 2013,' it said.
Chan yesterday declined to discuss the GDP forecast for 2013, but agreed that the domestic sector had displayed resilience. Private consumption expenditure grew by 3.7 per cent in real terms over a year earlier, on the back of stable job conditions and improved incomes.
Hong Kong remained in a state of full employment, with the jobless rate falling further to 3.2 per cent in the second quarter, from 3.4 per cent in the first. In June, around 92,900 private sector job vacancies were posted by the Labour Department, up 26.3 per cent over a year earlier.
Average monthly earnings for full-time employees, excluding overseas maids, rose by 4.8 per cent year on year in the second quarter.
In the property market, Chan warned investors to stay alert for a possible bubble. Residential property prices turned more steady towards the end of the quarter.
Overall flat prices in June surpassed the 1997 peak by this much
- The inflation forecast was revised to 3.7%