Retail sales fell 10 per cent by volume in March as domestic demand remained weak. However, the Census and Statistics Department said the performance was a slight improvement from the 11 per cent fall in the first two months of the year, raising hopes the consumer spending slump may be stabilising. The March fall was 14 per cent in value terms, with lower prices prevailing across all sectors. For the first quarter overall, retail sales also fell 10 per cent by volume and 14 per cent by value. Hong Kong Retail Management Association chairman Philip Ma King-huen said: 'The figures show no significant improvement, but the negative impact of deflation on retailers. This means we have to do more business in order to make a profit.' Hong Kong recorded its sixth month of deflation last month, with the composite consumer price index falling 3.8 per cent from a year before - the worst monthly fall on record. During the first quarter, Mr Ma said spending sentiment remained lacklustre in spite of strength in the stock market. The Hang Seng Index rose 8.89 per cent in the first three months of the year. 'Sentiment has turned depressed recently amid a choppy stock market,' he said. Hong Kong General Chamber of Commerce chief economist Ian Perkin said domestic consumer demand had been dampened by high real interest rates. 'As a result of continuing deflation, real interest rates in the SAR are at near record levels,' he said. ING Baring Securities (Hong Kong) retail analyst David Li expected retail sales to stay flat for six more months given record high unemployment of 6.3 per cent. In March, sales of luxury items such as cars, watches, jewellery and clocks continued to perform badly. Car sales tumbled 37 per cent in volume while sales of jewellery, watches and clocks were down 19 per cent. However, clothing and footwear saw a 1 per cent increase in volume despite a 19 per cent decrease in value. The chairman of fashion retailer Giordano International, Peter Lau Kwok-kuen, said news of tax rebates and obvious growth in tourist arrivals had helped sales. 'We saw profit growth during March and April. But, I am still pessimistic about the outlook of the sector,' Mr Lau said. He expected the retail sector to see flat sales during the next 18 months. 'Any recovery will depend on . . . Hong Kong's unemployment rate and people's savings rate,' Mr Lau said.
