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Hong Kong registered GDP growth of 0.8% y/y in the first quarter of 2016, lower than consensus forecast. However, in quarter-on-quarter terms, the economic growth shrank 0.4%, as compared with 0.2% growth registered in the fourth quarter of 2015. The first quarter’s report suggests that the Hong Kong economy expanded at its slowest pace since 2012. The country’s trade performance is being quite impacted by the weak global demand. Hong Kong’s imports and exports both contracted sharply.
Services exports weakened amid the deceleration of tourist arrivals and subdued spending by visitor. Hong Kong’s retail performance has been weighed on by major declines in tourist arrivals along with the relative strength of the HKD. Hong Kong’s retail sales continue to be in contraction for more than a year.
The volatility in the global financial market has also impacted the country’s economic confidence and has been a drag on domestic demand. Private consumption expenditure grew marginally 1.1% y/y in the first quarter of 2016, as compared with the growth of 2.7% registered in the fourth quarter of 2015. Meanwhile, the property market weakened as transactions eased and prices fell.
Hong Kong’s investment growth subtracted 2.3 percentage points from the headline GDP growth. It dropped 10.1% y/y, as compared to a contraction of 9.4% y/y in the previous quarter. Even if the relief measures stated in the 2016-2017 budget will give certain support to the economy, the risks to the economic growth continue to be tilted on the downside in the near term, noted HSBC in a research report.
The economic growth is expected to be helped by the rapid growth in the US and stabilization in the Mainland economy in the coming quarter. The Hong Kong government has retained its growth and inflation forecast for 2016. It projects the economy to expand between 1% and 2%, whereas consumer price inflation is likely to be 2.3% this year.
“We forecast overall GDP growth to slow to 1.5% in 2016, down from 2.4% in 2015”, added HSBC.
