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Nick Thomas

The 15.2 per cent fall in April was the steepest since January 1999, with spending on luxury items falling by 44 per cent

The Sars outbreak has led to the biggest drop in retail sales in Hong Kong in four years, down 15.2 per cent in April compared with a year ago, with spending on luxury items falling by 44 per cent.

While the figures did not surprise many economists, they believed the situation in May would have improved because the virus was at its peak in April.

After factoring in deflation, retail sales dropped 12.2 per cent by volume from April last year. The value of sales was $12.7 billion compared with a revised $14.2 billion for March.

According to the Census and Statistics Department, it was the greatest drop since January 1999, when the value of sales fell 20.7 per cent compared with a year earlier because of a fall in spending after the Lunar New Year.

Tourism-related spending suffered the greatest setback in April, with sales of jewellery, watches, clocks and valuable gifts leading the decline - tumbling 44.3 per cent in volume -  followed by  clothes, down  29.6 per cent.

While footwear, allied products and other clothing accessories dropped by 27.1 per cent in volume, motor vehicles and parts were down 23.8 per cent, commodities in department stores fell 19.7 per cent, and fuels dropped by 15.9 per cent.

The latest figures, however, found sales of commodities in supermarkets and miscellaneous consumer durable goods, such as computers and musical instruments, increasing by 8.6 per cent and 2.8 per cent respectively. It also saw a 1.5 per cent increase in sales of Chinese drugs and herbs.

A government spokesman said the escalation of Sars in April badly dented consumer spending and tourist arrivals.

But he said local consumer sentiment had turned a corner in recent weeks, with the Sars situation improving and the WHO lifting its travel advisory on May 23.

Eddie Wong, ABN-Amro's chief Asian economist, said the drop in sales of luxury goods  reflected the drastic decrease in the number of tourists coming to Hong Kong during the Sars outbreak.

'I think the extent of the decrease will be narrower in May as people started coming to Hong Kong [in that month],' Mr Wong said. But he expected the economy could only fully recover over time.

Daniel Chan, senior economist at DBS Hong Kong Bank, also said the figures in April reflected the adverse impact of Sars on the economy.

'But it is already much better than industry predictions, as many people predicted sales would drop by over 20 per cent,' he said.

He said that although many people avoided public places during the outbreak, they had to buy necessities, such as canned foods and toiletries, from supermarkets. This explained the strength of the supermarket sector.

Mr Chan predicted the drop in retail sales in May would remain in double digits because Guangdong tours only began returning to Hong Kong this month.

The Hong Kong government has cut its forecast for this year's growth of gross domestic product from three per cent to 1.5 per cent because of the impact of Sars.

Although the revised growth forecast probably means the government will exceed its deficit target of $67.9 billion this year, Financial Secretary Antony Leung Kam-chung  is still confident of erasing the budget deficit by 2006-07.



Sars sends retail sales plunging to a four-year low