Unemployment in Hong Kong Rises to About 5%

The number of Hong Kong workers without jobs probably doubled from January to July, as the city’s economy tumbled into its worst recession in a generation, economists said.

They warn the territory’s July unemployment rate will rise to about 5%--from 4.5% in June--as falling retail sales, fewer tourists and a shrinking financial industry mean less work in the service industries that employ more than 80% of workers.

The rise in the jobless rate comes amid Hong Kong’s continued support of the local currency’s peg to the U.S. dollar in the face of a wave of currency devaluations.

That tactic, say analysts, has driven up local interest rates, hastened a 50% fall in the benchmark index and made Hong Kong increasingly expensive.

“The rise in unemployment is part of the adjustment mandated by keeping the peg,” said Jan Lee, chief economist at HSBC Holdings unit Hongkong Bank, the city’s largest bank.

Economists expect that “adjustment” to last well beyond the release of the July figures today.

Lee said the rate could climb as high as 6.5% in the coming months and others are more bearish.

Enzio Von Pfeil, chief economist at Clarion Securities Asia Ltd. expects unemployment to rise as high as 10% while many other economists forecast 7% or 8%.

Hong Kong’s economy shrank 2.8% in the first quarter and the territory is facing its first recession in 13 years.

As economies slow across Asia, fewer tourists are coming to Hong Kong and those that do arrive are spending less. With the city’s stock and property prices also down by more than 50%, local consumers are also tightening their belts.

That’s taking its toll on businesses.

Cathay Pacific Airways Ltd., Hong Kong Ferry Holdings Ltd. and other Hong Kong companies have fired thousands of people this year in an effort to cut costs.

Most of the jobs were lost in the retail sector, where sales have fallen by double-digit amounts every month this year as spending power dried up.

Falling retail sales have forced Yaohan International Ltd., the Hong Kong arm of the Japanese department store, into bankruptcy last week after its department store chain folded in November. Theme International Holdings Ltd., which was aiming to become the Ann Taylor of Asia, closed 23 of 35 Hong Kong outlets, firing 86 of 140 employees.