HKU projects recession in 2013

Economists from the University of Hong Kong are warning that Hong Kong will fall into recession in 2013.

Alan Siu, executive director of HK Institute of Economics and Business strategy at HKU, sees a 20% to 30% chance that Hong Kong will lapse into recession in 2013 resulting from the uncertainty of the global economic situation.

"There is a chance for Hong Kong's economy to go into recession in the first half of next year, if the global economy contracts, (and) there is no chance for Hong Kong to continue to expand," said Siu.

He added, however, that the chance for the US economy to contract is not high, although the economic situation in the Eurozone is worrying.

He noted that the “. . . outlook for the global economy is not rosy."

HKU's forecast echoes an International Monetary Fund's report issued this week that cut China's economic growth forecast to 7.8% this year from 8% as it warned of risks to emerging Asia if the Eurozone crisis worsens and the United States does not avoid its "fiscal cliff.”

HKU economists also cut their 2012 growth forecast for Hong Kong’s economy to 1.6% from the previous 2% to 3% estimates, blaming weaker external demand.

Siu also noted the current economic environment is more subdued than it was estimated at the beginning of this year, since the global economy has been dragged down further by the European debt crisis and the weak recovery in the US economy.

Siu said that given a more uncertain economic outlook, private consumption spending is projected to grow at the slower pace of 2.8% in the third quarter, decelerating to 2.5% in the fourth quarter.

He also sees the existing private housing rental increase in the third quarter slowing down in the fourth quarter since rents are already at a very high level without much room for a continued rapid rise.

Domestic demand increase could account for 3.3 percentage points of the 1.6% overall increase in real GDP in the current year, while the net exports of goods and services is estimated to be minus 1.7 percentage points from the overall growth, according to HKU.

The city's real GDP in the third and fourth quarter of this year will increase by 2.8% and 1.9%, respectively, which is a downward revision of the previous forecast of a 2.7% growth in the third quarter and 3% growth in the fourth quarter.