Hong Kong joins the list of major economies in recession

Hong Kong has joined the growing list of economies that have slipped into recession as a softening of global demand for goods and services hit growth in the third quarter, prompting the government to cut its economic outlook for the fiscal.

Hong Kong's gross domestic product (GDP) fell 0.5 per cent from the previous quarter on a seasonally adjusted basis, following a fall of 1.4 per cent in the second quarter, according to government data released today. Last year, Hong Kong's economy grew 6.4 per cent.

"Demand towards the end of the quarter was severely hit by the outbreak of the global financial tsunami that caused significant jitters in the local asset markets," the government said in the release.

Economists predict this economic downturn will be deep as the world struggles to recover from the financial crisis. They said Hong Kong is now in a technical recession as the economy has contracted on a quarterly basis for two consecutive quarters, and expect that it will worsen next year and possibly last until 2010.

Some are of the opinion that China will provide a cushion for Hong Kong but its economy is also slowing, so Hong Kong's economy will deteriorate further in the fourth quarter. The International Monetary Fund (IMF), World Bank and The Organization for Economic Cooperation and Development (OECD) have all forecast that advanced economies will contract in 2009 in the grips of the world's worst financial crisis in 80 years. See: OECD forecast says industrialized countries heading for major slowdown and  IMF predicts global recession

Hong Kong now joins the European Union, Germany, Singapore and New Zealand as an economy in recession. Japan is close to recession and will release its third-quarter GDP figures Monday. See: Germany steps into recession with Q3 slump and  Bank of England governor says UK economy ''very likely'' in recession

The government kept its forecast of headline consumer price inflation unchanged at 4.2 per cent. It cut it 2008 GDP forecast to between 3 per cent and 3.5 per cent from the previous 4 per cent to 5 per cent.

Hong Kong last recession occurred in 2003, when the Severe Acute Respiratory Syndrome (SARS) outbreak devastated the tourism and business travel, leading to a contraction in the first and second quarters.

The IMF forecasts 2 per cent growth for Hong Kong in 2009, but a number of local economists say it will be hard-pressed to achieve half that. Investment banks are cutting jobs in the city as part of global lay-offs, while some retailers and restaurant chains are reducing staff as consumption slows and the unemployment rate is set to rise in coming months from 3.4 per cent.

Private consumption expenditure, which excludes spending by tourists, rose only 0.3 per cent in the third quarter from the previous quarter, as sentiment was hit by a 50 per cent plunge in the stock market this year and a dip in property prices. Investment spending rose 3 per cent from a year earlier, after 3.5 per cent growth in the second quarter.