GDP contracted by 0.5% in Q2 2011

Blame it on sharp deceleration in the export of goods.

According to Hang Seng Bank’s Hong Kong Economic Monitor, Hong Kong’s total exports only rose 0.5% in real terms, after increasing 25.7% in the first quarter.

Here’s more from Hang Seng Bank:

The Hong Kong economy contracted by 0.5% in the second quarter on a quarter-on-quarter, seasonally-adjusted basis, raising fear that the local economy is headed back into recession. While this was the first quarterly decline in GDP since the recession years of 2008-09, it should be viewed against the exceptionally strong growth of 3.1% in the first quarter.

On a year-on-year comparison, GDP expanded 5.1% in the second quarter. Although the pace was much slower than the 7.5% rate recorded in the first quarter, it represented sixth consecutive quarter of above trend year-on-year growth.

The main reason for second quarter’s slower growth was a sharp deceleration in the exports of goods. Affected by weaker demand in the US and Europe, as well as Japan’s major earthquake in mid-March, which had a significant impact on the global supply chains, Hong Kong’s total exports only rose 0.5% in real terms, after increasing 25.7% in the first quarter.

Exports to the US declined by 12.4% in the second quarter, and those to mainland China and Japan by 2.3% and 5.7% respectively, all in real terms. As these three markets accounted for close to 70% of Hong Kong’s total exports of goods in the first half of the year, their decline inevitably weighed on the overall performance of the export sector.

The outlook for external demand is likely to remain uncertain. The US economy is in danger of slipping back into recession as consumer sentiment is still affected by high levels of unemployment and falling house prices. The situation in Europe is no better due to lingering debt problems in the region. Fiscal policies might offer little help as governments on both sides of the Atlantic are trying to reduce budget deficits and debts in a bid to restore some kind of fiscal discipline.

Similarly, monetary policies are already extremely loose after the US Federal Reserve, the European Central Bank and other central banks of the advanced countries have been maintaining near zero interest rates, or resorting to quantitative easing measures, with limited effects on consumer spending and investment.

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