How suddenly things can turn. Think back to the first quarter. Not only in Hong Kong, but across the world, growth appeared robust. Even the battered US economy was generating a critical amount of jobs. Europe, meanwhile, led by Germany, was riding high on the back of a rapid rebound in manufacturing. In this region, too, output was soaring, with regional trade continuing to hit record highs. After the dark days of the global financial crisis, the future seemed at last a little brighter.
Such confidence, it now appears, may have been misplaced. By April, economic data turned quickly and has been sliding ever since. In the United States, employers eased off on hiring workers, which puts the tentative recovery in consumer spending at risk. In Europe, the German engine seems to be sputtering and the continent is facing deepening financial tensions around sovereign debt in its periphery. Asia, meanwhile, long the pillar of world economic growth, was also shaken, first, quite literally, by an earthquake that devastated parts of Japan, and then by a sudden weakening in demand from China.
Is this, then, the beginning of a hard landing for the global economy, another recession, perhaps, with equally devastating consequences as the bust in the wake of the collapse of Lehman Brothers?
Certainly, challenges abound. The US Federal Reserve, for example, has ended its quantitative easing programme, and the US government is set on a course of rapid fiscal tightening over the coming years, which will weigh on growth in America. In Europe, gradual monetary tightening and further fiscal consolidation in the periphery will also present persistent headwinds.
But, it's not all bleak. In fact, the temporary drags on global growth outweigh the structural challenges. As these lift, growth should strengthen once more in the third quarter, especially in Asia. Hong Kong, above all, highly dependent on external demand, will thus see the economy pick up steam again over the second half of the year.
Consider some of these temporary factors in more detail. First is the issue of Japan. Supply disruptions following the tsunami quickly affected the global car and electronics industries, leading to a slowdown in production. Output is now coming back on line, and at a faster pace than previously hoped. In the US, the full resumption in car production may add up to one percentage point to economic growth in the third quarter alone.
