Looking for contraction? Look no further than the booming city-states of east Asia.
Earlier this week, Singapore clocked in with a 6.5% decline in Q2 GDP. Of course Singapore’s GDP is famously volatile, as that number follows 27.2% growth in the previous quarter! Still it’s a little worrisome that the contraction is owed in part to weak demand for some key exports, such as semiconductors.
Meanwhile, Hong Kong’s GDP shrank by 0.5% in Q2. That’s well below the 0.7% growth that analysts had expected, according to WSJ.
The country’s exporters are getting squeezed right now between rising costs in China and slowing demand in the West:
Lo Wai Kwok, managing director at electronic manufacturing services company Surface Mount Technologies Ltd., said the entire electronics sector is seeing profitability come under pressure. The Hong Kong-based company, which had about $241 million in revenues last year, has a factory in China, where inflation and wage increases have added to costs, as have the price of Japanese components, which are priced in the surging yen. Because most of his products are priced in weakening U.S. dollars, he says profit margins are getting thinner.
Felix Chung of Chungweiming Knitting Factory Ltd., a company that makes knitwear in China and exports to the West through Hong Kong, is experiencing a similar problem. His clients in Europe and the U.S. are ordering fewer sweaters.
This is all well-reflected in the markets. The Hang Seng is down over 20% from its highs made late last year.