SCMP Saturday, September 1, 2001

Growth blow to SAR's morale


Worse than expected economic growth figures could have a seriously damaging psychological impact for Hong Kong, hammering consumer and investor confidence in key sectors of the economy.
The already fragile sentiment in the property, financial services and retail sectors would be seriously affected, analysts said yesterday as the Government forecast a scant 1 per cent growth for the economy this year, down from its original prediction of a 4 per cent boost for gross domestic product.
Analysts said news that the economy grew only 0.5 per cent in the second quarter would batter the confidence of potential home buyers in a market that was already floundering.
Property developer Emperor International Holding's executive director Tony Tse Wai-chuen said potential buyers might be scared off by the gross domestic product figures.
He fully expected the decision-making process by home-buyers would be even slower than before the data announcement.
The Government's revised economic growth forecast would damage long-term buying confidence and could result in developers delaying new launches.
Mr Tse said they would be forced to offer more preferential packages to lure buyers. He expected another 3 per cent to 5 per cent slump in asking prices in the secondary residential market.
Announcing the latest GDP figures yesterday, the Government confirmed that real estate developers' margins fell 0.3 per cent in real terms in the second quarter, following a 5.7 per cent decline in the first quarter.
Harriman Realty director Ricky Wong Kwong-yiu said developers' profits would be squeezed even further as competition forced them into rebates and special packages until at least the end of the year.
Some analysts said weak property sentiment would make it even more difficult to turn the economy around in the next quarter.
UBS Warburg head of regional property research Franklin Lam said the Government needed to review the property market first before it tackled the long-term economy. The disappointing data was also expected to have a damaging psychological effect on investor confidence in stocks.
Hong Kong stocks suffered a drubbing ahead of the GDP data release, with the Hang Seng sliding 1.99 per cent to 11,090.48.
"Sentiment is worsening. Originally people were thinking of a second-half recovery but it looks as if that hope is fading as we speak," said SBI e2-Capital Securities vice-president of institutional sales Ryan Fong Yen-hwung.
"There is no light at the end of the tunnel in the near term. There might be technical bounces here and there but there won't be a general turnaround in the near future."
G K Goh Securities research head Chu Siu-wah said the economic data suggested another season of disappointing company results.
"If the macro-environment is that bad, then I do not exclude the possibility that there will be a massive downward revision of corporate earnings. If that is the case, then even the equity market looks bad. Worse than before. But the good thing is that it is still a positive number, unlike Taiwan and Singapore both of which have already dipped into the red."
Consumer spending would also be sharply curtailed by the latest economic numbers, with the retail sector bearing the brunt of tighter budgets.
Hong Kong Retail Management Association executive director Anita Bagamas said retailers were already struggling to survive in the face of weakened consumer spending power.
She said the latest economic statistics would only heighten consumers' fears about job security and encourage them to tighten their belts even further. She called on landlords to lower their rental charges, which are a significant portion of retailers' operating costs, in response to the woeful economic figures.
Hong Kong retailers' profit margins were already being pinched as they slashed prices to encourage consumers to loosen their purse strings.
"We are already experiencing price pressure. Our margins are weakened because everybody else is so competitive," said Roger King, chief executive of cosmetic retailer Sa Sa International.
Simon Cheung Sing-chi, chairman of the middle to high end fashion retailer Gay Giano International, said competition was so intense the company had to hold its summer sale in May.
Although Hong Kong's retailers have been battling a protracted economic slowdown, many said they were stunned by the lack of vibrancy in the latest GDP figures.
"I originally thought it would be 1 per cent growth, but it turns out to be even less than that," said Terry Ng Tze-yuen, executive director of casual clothing chain Giordano.