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Hong Kong economy pulls out of recession

(Agencies)
Updated: 2009-08-14 19:45

HONG KONG: Hong Kong pulled out of its deepest recession since the Asian financial crisis in the second quarter, growing by a much faster-than-expected 3.3 percent from the previous quarter, in a further sign the global economy may be on the mend.

Official, seasonally-adjusted GDP data confirmed figures provided to Reuters earlier on Friday, showing the city's economy benefited more than expected from improving trade flows and private consumption.

Growth in the quarter was triple the 1.1 percent analysts had forecast, ending four quarters of contraction.

Related readings:  US retail sales' dip in July clouds recovery  France, Germany return to growth in 2nd quarter  US foreclosures rise 7% in July from June  Global recession coming to an end: report  Surprisingly strong jobs data signal turning point

The government upgraded its full-year 2009 forecast, saying GDP would shrink by between 3.5 and 4.5 percent, against a previous forecast for a 5.5 to 6.5 percent contraction.

"This rebound has largely been 'Made in China' - exports to the mainland have picked up, while easy liquidity conditions there have contributed to recent gains in Hong Kong asset prices, providing a strong boost to Hong Kong consumers," said Brian Jackson, an economist at Royal Bank of Canada.

Hong Kong follows rival Singapore, which surged out of recession in the second quarter. Germany and France on Thursday also announced a return to growth, surprising financial markets.

However, analysts noted the global economy remained weak. Although Hong Kong's GDP grew more than expected on a quarterly basis, it was still 3.8 percent lower than the same period last year. Markets had expected a decline of 5 percent.

The government said it expected GDP growth in the fourth quarter would nearly match the growth rate for the fourth quarter last year, but was cautious.

"We are still in the early stages of recovery. There is no room for complacency," government economist Helen Chan told a news conference.

BANKING ON CHINA

Chan warned investors to be cautious, saying that if economic recovery is slow, Hong Kong's stock market - which has rebounded 80 percent since early March - could be volatile.

Surging asset prices have triggered a rebound in private consumption, which jumped 4 percent from the first quarter on a seasonally adjusted basis, although consumption was 1 percent lower than a year earlier.

As an open economy and trading and financial hub, Hong Kong has been highly exposed to the global financial crisis and the economic downturn. But a pick-up in China's economy in the second quarter boosted trade flows through Hong Kong.

Exports jumped 11.6 percent from the first quarter, but were down 12.4 percent from last year. Fixed investment slumped 14 percent from a year earlier, but Chan said investment typically was last to recover after consumption and exports.

Hong Kong has attracted a flood of fund inflows in recent months as investors have sought assets with exposure to China's growth. Property prices in the city are up 20 percent this year.

That helped underpin consumption in the second quarter, along with goverment stimulus, including tax rebates and waivers on charges for public services.

"Hong Kong is not the only one to pull out of recession - so has Singapore - and this shows the Asian region has rebounded more strongly than market watchers had expected," said Sherman Chan, an economist at Moody's Economy.com.