HONG KONG: Hong Kong's economy expanded faster than expected in the third quarter, helping the trade-dependent territory avoid a recession as its exports and retail sector regained traction thanks to a pick-up in the world's two largest economies.
The global economic turmoil and a slowdown in China have weighed on Hong Kong's economy, but analysts are more optimistic about the outlook for the financial center on the back of encouraging data from China and the United States.
But the Hong Kong government remained cautious, saying the outlook was subject to a high degree of uncertainty. It revised its full-year 2012 economic growth forecast to 1.2 percent from 1-2 percent, down sharply from a 4.9 percent expansion in 2011.
The seasonally-adjusted third-quarter data was stronger than t he average forecast of four analysts who expected the economy to grow 0.13 percent from the previous quarter, when the economy contracted 0.1 percent.
On a year-on-year basis, Hong Kong's gross domestic product (GDP) growth edged up 1.3 percent, compared with a 1.2 percent expansion in the second quarter.
"The pick-up in Hong Kong's economy is a combination of base effect, China recovery, slight recovery in the US as well as iPhone5 and other technical gadget shipments," said Citi Group analyst Adrienne Lui, who expects full-year growth of 2.2 percent.
"We do expect a bit more of a recovery at the end of the year, as trade gradually recovers in the region, some liquidity push to the system and therefore better sentiment," she said.
Exports in the former British territory in September grew 15.2 percent from a year earlier, recovering from a growth rate of 0.6 percent in August as demand from mainland China and the United States picked up.
Hong Kong's data followed better-than-expected October export figures from China, where export growth hit a five-month high above 11 percent, boding well for the city's trade sector, which is predominantly re-exports to and from mainland China.
A flurry of Chinese data, from factory output to investment and trade last week, also signaled the world's second-largest economy had turned a corner.
"With mainland China gradually regaining some momentum, our external trade should be more steady in the fourth quarter and together with continued growth expected for the domestic sector, our economy should show some relative improvement in the fourth quarter," said Helen Chan, Hong Kong government economist.
Reuters surveyed 25 analysts last month and the average estimate for economic growth this year was 1.8 percent.
Consumer and asset prices in Hong Kong have been under pressure recently as funds unleashed by quantitative easing measures in the United States, Europe and Japan continue to pour into the city of more than 7 million people.
Hong Kong has one of the world's most open economies and a property market that is easy to enter, making the city's housing market a popular target for "hot money".
The authorities have deployed a series of tightening measures to rein in prices and recently intervened in the currency market to curb the strength of the Hong Kong dollar , which is pegged to the US dollar.
The government raised the forecast for full-year headline consumer price inflation to 3.9 percent from 3.7 percent, while underlying inflation was revised to 4.5 percent from 4.3 percent.
"The pace of tapering in CPI inflation in the months ahead is expected to be slower than earlier envisaged," the Hong Kong government said in a statement, referring to the rebound of global food prices and the new round of quantitative easing.
However, the more moderate increases in import prices in recent months should help to keep inflation largely contained in the rest of the year, it added.
Paul Tang, chief economist at Bank of East Asia, expected the city's CPI to keep steady in the coming months, since the unemployment rate was rising which would help relieve the inflation pressure from the demand side.