HONG KONG: Improving overseas demand for Hong Kong goods in the past few months has helped breed optimism that the export sector has hit a bottom in the first quarter of the year and is now on track to recover.

The contraction in Hong Kong's exports eased to 18.2 percent year-on-year in April from a 21.1 percent drop in March, according to government data. Hong Kong exports have declined for six consecutive months.

Exporters and economists now generally forecast a continuous rally in the sector after they saw significant improvement in new orders received in the second quarter.

"The performance of the sector has improved in the second quarter," said Benson Pau, managing director of household products exporter Wings Trading (HK) Co Ltd, which is a member of The Hong Kong Exporters' Association.

A consensus among fellow exporters believes that the sector has bottomed out in the first quarter, he said.

"In our own case, the contraction in new orders has eased to a single-digit level in the second quarter from a double-digit level the previous quarter. New orders received for July even posted a positive single-digit growth compared with the same period last year," he said.

"I believe the trend could sustain in the coming months as our clients have wound down their inventories," Pau said, noting that overseas retailers had suspended placing new orders during the early months of this year due to uncertainties caused by the global economic downturn.

Latest data from Hong Kong Trade development Council (HKTDC), the city's quasi-government trade promotion body, supports Pau's remarks.

HKTDC notes in its second-quarter Trade Quarterly that overseas buyers have begun to place small orders to replenish their merchandise after running down their inventories.

The HKTDC Export Index, an indicator for the performance and sentiment of Hong Kong's traders, rallied to 42.9 in the second quarter from 25.8 in the first.

Economists echo the bullish views of exporters, citing improving consumer confidence in the US, Hong Kong's largest export market.

"The improvement in exports will likely be more significant in the second half," said Kevin Lai, a senior economist at Daiwa Institute of Research.

"After a de-stocking process of more than six months following the financial crisis, overseas retailers have basically wound down their inventories. They now need to replenish their empty stockrooms."

Lai also cited economic improvements in the US and the European Union for his optimism.

The US Conference Board said earlier its Consumer Confidence Index soared to an 8-month high of 54.9 in May from 40.8 in April.

Meanwhile, the ISM new order index has flashed an initial sign that production activities in the US manufacturing industry are expanding again after contracting for 17 consecutive months.

Kelvin Lau, an economist at Standard Chartered Bank, expects Hong Kong's exports, but not annual growth, to continue improving in the remainder of the year.

"A positive growth in exports will be seen only in the first quarter next year at the earliest due to lower comparative base," he said.

However, he believes exports to Asian markets, particularly to the mainland, will likely recover faster as economies in the region fare much better than Western economies.

(HK Edition 06/24/2009 page4)