15 Dec 2016
Hong Kong Economy: Low Growth Trend Will Continue Ahead
1. In 2016, the Hong Kong economy recorded the slowest pace of growth since the global financial crisis
In 2016, the economic growth of Hong Kong is expected to be around 1.5%, not only lower than the 2.4% growth in 2015, but also lower than the 3.4% average over the past decade. Its characteristics include 1) sluggish external trade performance, against the subdued global economic backdrop; 2) exports of services declined notably, with continuous negative impact from travel services exports and weaker financial market activities; 3) visible slowdown of private consumption activities, amid asset market correction and external weaknesses; 4) weak investment performance, given anemic economic growth and elevated uncertainties; and 5) changes in inventories provided positive contribution to economic growth, etc. Fortunately, the Hong Kong economy has gradually recovered during the year, with the abovementioned factors somewhat alleviating. The economic growth in Hong Kong was gradually stabilizing, from 0.8% in Q1 to 1.7% and 1.9% in Q2 and Q3 respectively.
Amid sluggish global economic growth, both the Mainland and the US economies, Hong Kong’s two largest trading partners, decelerated over the past year. The external environment of Hong Kong remained weak, with exports of services also declined notably. Merchandise trade declined 3.6% in real terms in Q1 2016 over the previous year. With the global economy recovered gradually later, merchandise trade of Hong Kong also improved somewhat to a still weak 2% or lower level. However, merchandise imports increased faster than exports, leading to the widening of trade deficit. At the same time, exports of services recorded notable decline. It was attributed to, first, the double-digit decline in exports of travel services in the first three quarters of 2016 because of the continuous declines in the number of visitors and their per capita spending. Second, the worsening in financial market activities as compared with the time of the Mainland’s financial market boom in 2015, together with the negative impact from the US rate hike and the RMB depreciation at the beginning of 2016, the trading and fund raising activities were unavoidably affected, leading to the decline in financial and other business services exports in the first three quarters of 2016 and negatively affecting the overall exports of services performance.
Private consumption recorded meaningful slowdown, while investment performance remained weak. As mentioned above, Hong Kong’s financial markets recorded significant volatilities in the beginning of 2016, property market also entered into a correction between Q4 2015 and Q1 2016, together with the sluggish external environment and poor tourism performance, private consumption growth recorded four consecutive quarters of deceleration. Private consumption then recovered slightly to a still low 1.2% growth in Q3 when the overall economy and the asset markets stabilized. Meanwhile, businesses also became more cautious in making new investment amid economic slowdown and elevated uncertainties, resulting in weak investment performance. The gross domestic fixed capital formation recorded four consecutive quarters of decline, with machinery, equipment and intellectual property investment even declined for five consecutive quarters, including four quarters of double-digit decline. In Q3, investment has picked up when the overall economy stabilized during the period.
Changes in inventories were a major driving force for overall economic growth. Based on the component contribution to year-on-year rate of change in real terms of GDP, changes in inventories contributed 1.0, 1.7 and 2.0 percentage points to the overall economic growth for the first three quarters of 2016 respectively. This was mainly because of the low comparison base after massive destocking in 2015. As such, even just a slight increase in inventories was sufficient to bring strong contribution to overall economic growth. However, changes in inventories are not expected to boost the economy meaningfully in Q4.
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