Hong Kong Q1 GDP up 0.4%

HONG KONG - Hong Kong's gross domestic product (GDP) grew to its slowest pace in a year and a half in the first quarter, rising by 0.4 percent year-on-year compared to 3 percent expansion in the last quarter of 2011, the city's statistic department said Friday.

Government economist Helen Chan said the data indicated Hong Kong's economy slowed further. She said the weak performance was mainly due to a lull in exports amid a difficult external environment, however, the domestic sector continued to display strength and helped cushion overall economic performance.

Total exports of goods dipped 5.7 percent over a year earlier, while total exports of services grew 3.6 percent thanks to thriving inbound tourism.

On the domestic front, private consumption expenditure rose 5.6 percent due to improved income conditions. Investment spending also increased 12.2 percent, buttressed by active machinery and equipment acquisition, and public sector infrastructure works.

The downside risks in the external environment remain notable, she said, mainly due to the lingering euro zone sovereign debt crisis.

The stable economy in the Chinese mainland and improved US economy will provide some support to Hong Kong's exports, she said, adding forecast GDP growth remains at 1 percent to 3 percent for 2012 as a whole.

The forecast rates of headline and underlying consumer price inflation for the year remain at 3.5 percent and 4 percent, respectively.

Although Hong Kong's latest GDP growth seemed disappointing, the Hongkong and Shanghai Banking Corporation (HSBC) said in its Global Research that it's important to note the city's economic growth "did not decelerate on a sequential basis."

According to the research, HSBC believed the first quarter will likely be the lowest point in Hong Kong's growth trajectory this year. "This view pivots on the fact that besides exports, all other growth drivers are actively supporting Hong Kong's economic growth."

"Nonetheless, inflation is clearly on the cool and domestic demand is still holding up, so we remain comfortable with our above consensus forecast of 3.3 percent GDP growth this year," said the research.

HSBC believed the biggest downside risk for the city's economy continues to be a spillover from Europe's ongoing sovereign debt crisis and deepening recession.