May 17, 2019 / 9:46 AM / 5 days ago

UPDATE 1-Hong Kong Q1 GDP growth weakest in a decade, trade war takes toll

* Hong Kong Q1 GDP +0.6% y/y (advance estimate +0.5%)

* Q1 GDP s/adj +1.3% q/q (advance estimate +1.2%)

* Govt maintains 2-3% GDP growth for 2019

* Govt says economy to face pressure as trade tensions drag on

By Twinnie Siu and Donny Kwok

HONG KONG, May 17 (Reuters) - Hong Kong’s economy expanded at its slowest pace in nearly 10 years in the first quarter, due to weaker exports and investment as the port city’s business is hit by China’s slowdown.

The trade-reliant economy grew 0.6% in the first quarter from a year earlier, the government said on Friday, half the pace of the fourth quarter’s 1.2% expansion and the weakest since the aftermath of the global financial crisis in 2009.

The Asian financial centre has been buffeted by the U.S.-China trade war, along with cooling property prices and volatile stock markets.

On a quarterly basis, the economy expanded a seasonally adjusted 1.3% after contracting a revised 0.5% in the fourth quarter last year.

Earlier this month, the government released a preliminary reading on gross domestic product for the first time showing the economy grew 0.5% in the first quarter year on year and 1.2% quarter on quarter.

“If U.S.-mainland trade tensions do not show any easing in the near term, they would pose a drag on the global economy, and the Hong Kong economy would inevitably face greater downward pressure,” government economist Andrew Au said in a statement.

Other external uncertainties, such as Brexit and geopolitical tensions also warrant attention, Au added.

The government maintained its forecast for full-year 2019 growth at 2-3%, compared with 3% growth in 2018.

TRADE TENSIONS

Last Friday, Washington escalated its 10-month tariff war with Beijing by raising levies on $200 billion of Chinese goods in the midst of trade talks, and China hit back by imposing higher tariffs on $60 billion worth of U.S. goods, effective on June 1, sending global financial markets into a tailspin.

The two sides appear deadlocked in negotiations. But Trump has since softened his tone, insisting that talks between the world’s two largest economies had not collapsed.

“Hong Kong’s export performance in the period ahead will, to a large extent, depend on whether the U.S. and the mainland can reach a trade agreement,” Au added.

Secretary for Commerce and Economic Development Edward Yau said last week that additional tariffs would certainly harm global trade and the local economy, but it was still unclear the extent of the damage. China is Hong Kong’s largest trade partner and the two economies are closely linked.

The commerce chief also announced some relief measures to alleviate the burden on local businesses, including the extension of the discounted exporters’ insurance to June 2020.

“As usual, both the government and industry are preparing for the worst but hoping for the best,” Yau said. (Editing by Jacqueline Wong)

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