Hong Kong's economy unexpectedly contracts in first quarter

A traditional junk sails in Victoria Harbour against the skyline in Hong Kong, on March 30, 2016.
A traditional junk sails in Victoria Harbour against the skyline in Hong Kong, on March 30, 2016. PHOTO: AFP

HONG KONG (BLOOMBERG) - Hong Kong's economy unexpectedly contracted in the first quarter as falling retail sales and a weakening property market weigh on the city.

Gross domestic product contracted 0.4 per cent in the three months through March from the previous quarter, the government said in a statement Friday, compared with the median estimate for 0.1 per cent growth from analysts surveyed by Bloomberg News. The economy expanded 0.8 per cent in the first quarter from a year earlier, weaker than the 1.9 per cent expansion in October through December.

"The external environment deteriorated during the quarter, characterized by subdued global growth and sharp gyrations in global financial and monetary conditions, leading to a deeper setback in both goods and services trade," the government said. "The domestic sector also lost some momentum, as the weak global outlook with rising downside risks affected local economic sentiment."

Hong Kong's retail sales fell for a thirteenth straight month in March, the longest stretch since 1999, as mainland Chinese tourists continued to stay away. Chinese visitors are projected to fall 3.2 per cent for the year, according to the Hong Kong Tourism Board, with average spending dropping 4 per cent.

"China's slowdown and global sluggishness continue to hit the Hong Kong economy," Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said ahead of the data release. "The city will also need to deal with the impact of falling property price this year that will drag domestic consumption."

Hong Kong property sales tumbled to a 25-year low in February as prices continued to slide. The number of the city's homeowners with apartments worth less than their mortgages soared 15 times in the first quarter, according to the Hong Kong Monetary Authority.

Goldman Sachs Group Inc. sees home prices falling 20 per cent through 2018, mainly driven by a potential 150 basis points to 200 basis points increase in interest rates and the limited near-term prospect of any loosening of government cooling measures, according to analyst Justin Kwok.