HONG KONG: Retail sales for February are expected to show a 1 percent decline year-on-year. The lowered expectations are hinged to a weak economy and the seasonal impact of the lunar new year, a Reuters poll showed.

The holiday fell in January this year and in February last year. Tourist arrivals to Hong Kong increased in January 2009 - with more than half the visitors coming from the mainland. Business fell in February when the holidays were over. Tourists' spending accounts for 20-30 percent of retail sales.

Still, consumer spending clearly is continuing to slow, as the recession pushes the unemployment rate up to a three year high of 5 percent. Analysts say it could go higher, reaching 6 percent in the not too distant future. Wages are expected to remain stagnant this year with many employees facing the likelihood of pay cuts which would place a further curb on household spending power.

"Going forward, company closures and lay-offs look set to surge aggressively with almost across-the-board deterioration in business," said Joanne Yim, chief economist at Hang Seng Bank. "We expect retail sales to decline 8 percent in volume in 2009."

Retail sales in January, totalling HK$27.5 billion ($3.5 billion), rose 7.4 percent from a year earlier.

The survey forecasts final figures for sales volume during February will reflect a 1.7 percent drop from a year ago. That would make it the worst month since November last year, reversing a 5.4 percent increase in January.

Consumer spending by volume has been declining since October as the economic recession has deepened - apart from a rebound in January due to the Chinese New Year holiday. By value, sales have continued to increase but at a sharply slower rate.

Hong Kong has been in recession since the third quarter of last year and analysts forecast the economy will contract 3 percent this year, according to a Reuters poll.

Retailers are slashing prices to attract buyers and consumers are putting off buying big-ticket items such as cars. Automobile sales for January plunged 36 percent from January 2008.

The financial crisis has taken its toll on Hong Kong's economy. The city's exports tumbled by 23 percent in February - the biggest drop in more than five decades.

Many pundits earlier predicted that Hong Kong's economy would slump into negative growth this year. Standard Chartered Regional Economist (Asia) Nicolas Kwan earlier forecasted the city's GDP growth will hit somewhere between negative 0.9 percent to negative 1.8 percent this year.

China Daily - Reuters

(HK Edition 04/02/2009 page16)