May 15, 2015 / 10:01 AM / 3 years ago

UPDATE 1-Hong Kong's economy posts mild Q1 growth as tourism slowdown bites

(Adds analysts comments, details)

* Q1 GDP expands s/adj 0.4 pct vs Q4

* Q1 GDP rises 2.1 pct y/y vs same in Reuters survey of analysts

* Retail spending, weaker tourism drag on growth

* 2015 headline inflation f‘cast lowered to 3.2 pct from 3.5 pct

By Twinnie Siu and Christina WY Lo

HONG KONG, May 15 (Reuters) - Hong Kong’s economy grew only slightly in the first quarter from the fourth, hit by weak retail sales on the back of a slowdown in mainland Chinese tourists to the Asia financial centre.

Gross domestic product for the January to March quarter grew a seasonally adjusted 0.4 percent, slightly better than revised 0.2 percent growth in the fourth quarter.

From a year earlier, the economy grew 2.1 percent, in line with a median forecast of 2.1 percent from five analysts but slower than the 2.4 percent pace in the fourth quarter of 2014.

“The main reason that Q1 did not pick up quickly was that merchandise trading was not satisfying,” said Raymond Yeung, an analyst at ANZ.

“Now that April’s trade figures have come out which showed Hong Kong trade transactions with China, Taiwan and South Korea were still weak, I think prospects for Q2 remain sluggish,” Yeung said. He expects full-year growth of 2.9 percent.

In February, the government forecast economic growth to expand one to three percent in 2015, while a Reuters poll of analysts estimated that Hong Kong’s gross domestic product would grow an average 2.7 percent this year.

The government has warned that Hong Kong must make economic stability a priority and is trying to rebuild confidence after more than two months of pro-democracy protests late last year paralysed parts of the city and unnerved authorities in Beijing.

Hong Kong leader Leung Chun-ying has also pledged to support tourism-related businesses after weak retail sales underscored the impact of a drop in mainland Chinese visitors and tighter visa rules on residents from Shenzhen who visit the city.

The government said in a statement on Friday it will stay vigilant to the impact of the recent slowdown in tourism. It revised it full-year headline inflation forecast for 2015 to 3.2 percent from 3.5 percent.

Travel industry executives say political tension in Hong Kong, including protests against mainland shoppers in which some people have been harassed, have discouraged mainland tourists. Some of them also prefer to take advantage of weaker currencies in places such as South Korea and Japan.

Hong Kong retail sales fell 2.9 percent by value in March from a year earlier.

The former British colony returned to China in 1997 under a “one country, two systems” formula that gives it some autonomy from the mainland and a promise of eventual universal suffrage. Beijing has allowed a free vote for city leader in 2017, but insists on screening any candidates first.

Hong Kong’s stock market has risen about 16 percent so far this year, lifted by the launch of the Shanghai-Hong Kong stock connect scheme and underpinned by strong capital inflows into the city.

Home prices have more than doubled since 2008 in one of the world’s most expensive property markets, putting a strain on business costs and worsening income gaps. (Additional reporting by Michelle Chen; Editing by Anne Marie Roantree and Jacqueline Wong)

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