Hong Kong's economic outlook has dimmed in the past few months, as exports and consumption have slowed, and turbulence in financial markets threatens to exacerbate an economic slowdown, a Reuters quarterly poll shows.

That has prompted analysts to cut their GDP growth forecast for 2008 to 4.4 percent from 5 percent in a similar poll in July and well below average annual growth of 7.3 percent over the past four years, according to the median estimate of 10 economists.

The SAR continues to benefit from mainland's economic boom, which has boosted tourism, demand for financial services and trade through Hong Kong. But even mainland's economy is slowing though it remains strong while demand from the US for goods from Hong Kong is declining.

Data last week showed exports from Hong Kong grew just 1.9 percent in August from a year earlier.

"It's going to be tough over the next few quarters," said Sean Yokota, an economist at UBS. "Even if we don't see a technical recession, it will feel like a recession. But this is a cyclical slowdown. I don't see a deeper slowdown because the ingredients are not there: credit as a percentage of GDP has been declining since the Asian financial crisis."

The poll, conducted last week, forecast Hong Kong's economy would also expand by 4.4 percent in 2009, down from the July poll's forecast for 5 percent growth.

Consumer spending has been the main driver of economic expansion in the past year, supported by a tight labor market which has boosted wages.

In the second quarter, however, private consumption, and the overall economy, unexpectedly declined from the previous quarter as consumers were hit by a weak stock market and a surge in inflation above 6 percent.

The ongoing financial turmoil is likely to put more pressure on consumers as Hong Kong's stock market index has dropped more than a third this year. But inflation is easing as the government has introduced relief measures, including waivers on public housing rents for three months and temporary utility subsidies.

"The more challenging economic environment means unemployment will start to increase and that will be less conducive to consumer spending. But we are not expecting a collapse because we will still see wage growth and negative interest rates," said Kelvin Lau, an economist at Standard Chartered Bank.

The poll forecast that inflation would fall to 4.7 percent in 2009 from an estimated 5 percent this year as food price inflation is showing signs of moderating and a global economic slowdown could see oil prices stabilize, analysts said.

The export slowdown is expected to worsen in coming months, and some analysts say exports could see negative growth by early next year if the US enters a recession. The poll forecast a $29.3 billion trade deficit for this year, widening next year to a $33.3 billion deficit although as a re-export center a trade deficit has less economic significance than in other economies.

Reuters

(HK Edition 10/01/2008 page2)