Hong Kong economy expands most since 2011, dodging recession

HONG KONG (BLOOMBERG) - Hong Kong's economy grew at the fastest pace since March 2011 as a pick up in exports helped offset sluggish retail sales in the city.

Gross domestic product expanded 1.6 per cent in the three months through June from the previous quarter, the government said in a statement Friday. That beat the median estimate for 0.5 per cent growth from analysts surveyed by Bloomberg. The city's economy unexpectedly contracted in the first quarter. Two consecutive quarters of negative growth could have meant a technical recession for the Asian financial hub.

Hong Kong's stronger-than-expected growth came as China's economy showed signs of stabilization after authorities stepped up policy support. The city's government kept its prediction of 1 per cent to 2 per cent economic expansion this year, slower than the 2.4 per cent gain last year. Economists forecast 1.2 per cent growth for 2016, according to the median estimate of analysts surveyed by Bloomberg.

"The recovery in China has definitely helped Hong Kong's economy, like the re-exports sector," said Banny Lam, head of research at CEB International Investment Ltd. in Hong Kong. "I expect Hong Kong's economy to continue to stabilize for the rest of the year."

Hong Kong's economy expanded 1.7 per cent in the second quarter from a year earlier, stronger than the originally reported 0.8 expansion in January through March and beating the 0.9 per cent rise expected by economists.

Retail sales in the city dropped for a sixteenth straight month in June as retailers including Chow Tai Fook Jewellery Group Ltd. negotiate rent cuts in the city and plan store closures. Mainland Chinese visitor arrivals to the former British colony declined for a thirteenth month in June amid a weakening yuan.

The downtrend was reversed in July as Chinese visitor arrivals grew 2.2 per cent from a year earlier, the South China Morning Post reported Thursday, citing Hong Kong Tourism Board Chairman Peter Lam.

"The latest visitor arrivals trend suggests that the drag from the slowdown of inbound tourism has been reducing," the government said in a statement. "If this continues, this may help to improve the performance of services exports and to gradually stabilize retail sales in the latter part of the year."

Hong Kong also bucked the trend in Asia as other economies in the region are suffering. Singapore on Thursday cut the top end of its 2016 growth forecast after the economy expanded less than previously estimated in the second quarter.