Hong Kong's economy suffered its worst quarter in three years, stuttering to a halt in the second quarter as exports, consumption and investment all slowed, data showed on Tuesday.
The government said gross domestic product (GDP) expanded by less than 0.05 percent from the first quarter. It was the weakest performance since the second quarter of 2003, when the economy contracted at the height of the Sars outbreak.
Compared with a year earlier, the economy grew 5.2 percent, well below a forecast of 6.4 percent in a Reuters poll. The government maintained its 4-5 percent growth forecast for 2006 and said it was likely to be nearer 5 percent. Economists said external factors were the main reason for the poor performance but they were not too downbeat.
Hong Kong has been riding in the past few years on the back of China's economic expansion, which has boosted trade flows, spurred investment and created a tourist boom as Beijing has eased restrictions on travel to the territory.
However, a slowing global economy, led by the United States, the territory's biggest export market after China, has begun to put pressure on exports, which fell 1.1 percent in the second quarter from the first.
The government said economic growth in Europe and Japan would partly offset that. Tourism, too, was slower in the second quarter but analysts expect it to pick up in the second half of the year. The economy's stagnation in April-June contrasted with a revised 2.2 percent increase in GDP in the first quarter.
After being one of Asia's strongest economies after China and India in the past two years, growing by more than 7 percent annually, Hong Kong's second-quarter performance lagged most of its neighbours, including South Korea and Singapore.
However, Vincent Kwan, Hang Seng Bank's chief economist, said he was sticking with his full-year growth forecast of 6.3 percent. Private consumption expenditure rose 1 percent in the second quarter from the previous three months, although that was down from a revised 1.6 percent increase in the first quarter.
Higher wages and a vibrant labour market have boosted consumer confidence. Domestic consumption could also be helped by signs that interest rates may have peaked for now. Hong Kong tends to track US rate cycles due to its currency peg to the US dollar, although flush liquidity and keen competition meant banks ignored the last two US rate rises.
Tame inflation is supporting the economy and the government kept its forecast for inflation in 2006 unchanged at 2 percent. The government said on Tuesday that the composite consumer price index rose 2.3 percent in July from a year earlier, picking up slightly from 2.2 percent in June.
Investment expenditure rose 4.3 percent in the second quarter from a year earlier, slowing sharply from a revised 7.6 percent increase in the first quarter. Spending on machinery and equipment was robust, surging 12.8 percent on a year earlier, but investment in the construction sector fell 6.4 percent.
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