HONG KONG: The local labor market could deteriorate further, with the jobless rate likely to reach as high as 7.5 percent early next year, as the economic downturn continues and fresh graduates start to join the workforce next month, economists said.

The halt seen last month on the upward trend of the jobless rate was just a temporary break, they said.

The city's jobless rate for the three months ended May stayed at a three-year high of 5.3 percent, unchanged from the end-April level, the government said last week.

This was the first time since August last year that the unemployment rate did not rise.

The halt brought some comfort to employees in the city. However, economists caution against being euphoric too early.

"It is still too early to conclude that the jobless rate has peaked out," said Kelvin Lau, an economist at Standard Chartered Bank Ltd.

"The unemployment rate normally peaks out in six to nine months after the real economy bottoms out."

A market consensus notes that the local economy had hit a bottom in the first quarter.

The city's gross domestic product (GDP) contracted 7.8 percent in the first quarter from a year ago as exports slumped by the most since 1954 amid a worldwide recession while the financial market was also hard hit by the global financial tsunami.

Companies are still reluctant to recruit additional staff in the absence of significant improvement in the real economy, the economist said.

"What we have seen so far are only liquidity-driven rebounds in financial markets. We have yet to see any recovery in exports," Lau said.

The export sector is the key pillar of the local economy, economists note.

US demand for Hong Kong exports has seen no significant improvement yet, as consumers there are still in the process of de-leveraging, Lau said.

The economist also notes that many people who have previously given up on job-hunting after fruitless efforts are now starting to look again for a job.

"This will not help the unemployment rate," he said.

People who have not been actively looking for a job were considered in a state of voluntary unemployment and were not counted in the jobless rate.

Lau also expects the influx of fresh graduates into the labor market starting next month to boost the jobless rate.

The unemployment rate will likely climb to 6 percent to 6.5 percent by the end of the year and could peak at 7.5 percent in the first half of next year, he forecast.

Irina Fan, a senior economist at Hang Seng Bank Ltd, is also pessimistic about the outlook for the local labor market, citing the continuous "weak" performance of the export sector.

"Exporters generally haven't received shipment orders for the Christmas season of this year. They normally receive those orders by this time of the year in the past," she said.

What exporters have been getting are only short orders from overseas importers who need to replenish their inventory after several months of de-stocking, she said.

"And the short orders received by exporters so far only amounted to 30 percent to 40 percent of those received in previous years," Fan said.

"I am afraid that exporters will be forced to start a new round of staff retrenchment if this situation persists."

She also worries that some companies that have forced their staff to take non-paid leaves may have to resort to layoffs ultimately if business does not improve soon.

"Many professional service firms, including big multinational accounting firms have implemented no-paid-leave programs. They could cut jobs if businesses remain poor as their no-paid-leave programs expire," she said.

(HK Edition 06/27/2009 page2)