Hong Kong export contraction for the whole year is forecast at 10% to 12%, revised down from the earlier 6%, the Trade Development Council says.

According to the latest HKTDC Trade Quarterly, while overseas buyers have begun to place small orders to replenish their merchandise, a more stable external trade environment can be expected only in the second half of the year.

The HKTDC Export Index, which monitors export performance and prospects of Hong Kong traders, rebounded strongly, to 42.9 for the second quarter, up from 25.8 in the first quarter.

In the second quarter, export confidence rose by more than 17 points, the highest level in a year. The electronics sub-index grew to 45.1, and the Mainland sub-index rose to 49.9 - almost reaching the threshold for expansion.

Sales will probably return to normal growth with global economic recovery, the council said. This will hinge, however, on normal functioning of the global banking and credit systems, a bottoming out of the US housing market and a revival of business and consumer confidence in developed economies.

The greatest medium-term challenge is to avoid prolonged global recession, the council said. This will mean rebalancing excessive savings in Asia against overspending in the US and other rich countries.

Other threats

Intensified protectionism and the outbreak of human swine flu may also threaten the global economic landscape, the council added.

Though far from immune to the global crisis, the Mainland's consumer market is outperforming its overseas counterparts. For the first quarter, the Mainland's retail sales of consumer products grew 15%, while US results dropped 10%.