Hong Kong economy is likely to have a strong rebound in the first quarter

Recent economic releases suggested that the local economy is likely to have registered a sharp rebound in the first quarter. Domestic demand continued to display strength and external demand also rebounded sharply.

For instance, the volume of retail sales expanded 15.8% in the first quarter, after growing 9.9% in the previous three months. The pronounced wealth effects as a result of a liquidity-driven asset market rally, and improving economic and labour market conditions all rendered support for consumer spending. The unemployment rate dropped to a 15-month low of 4.4% in the first quarter, from a peak of 5.4% in mid-2009.

The value of total exports soared 26% in the first quarter, from a decline of 2.0% in the previous quarter, reflecting both a recovery in demand and a very low base of comparison last year when the value of exports plunged 22.8% in the first quarter of 2009, as the financial tsunami spread across the globe. Nevertheless, the contribution to growth is likely to be more than offset by the negative impact of the much faster expansion of imports. Total imports surged 34.3% in the first quarter.

As such, we see an impressive first quarter GDP reading of 7.3%, which would be the fastest since the first three months of 2006.