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Hong Kong Economy: Maintaining stable and relatively fast growth in 2018

Fastest growth rate since 2011

Hong Kong economy expanded remarkably in 2017 with the average real GDP growth reaching 3.9% year-on-year in the first three quarters, the fastest pace since 2011. The strong performance was attributable to a number of factors, namely better trade performance amid a synchronized recovery among major economies globally; the relatively low base of comparison in merchandise trade, tourism and retail sectors in 2016; generally positive global economic sentiment and low interest rate environment, leading to strong equity and property market performance, and financial and business services demand; and the robust private consumption performance driven by full employment condition and positive consumer confidence in Hong Kong. The growth momentum in the first three quarters of 2017 remained largely steady with real GDP growth rate reaching 4.3%, 3.9% and 3.6% respectively. The BOCHK also raised the growth forecast for 2017 to 3.8%.

External performance reversed the downtrend over the past two years. In 2017, a number of major economies, including the US, Eurozone, Japan and Mainland China, all enjoyed a synchronized recovery. Hong Kong, as a small and open economy, also benefited from the global recovery, with exports of goods increasing 6.7% year-on-year in real terms in the first three quarters of 2017, notably above the 0.5% growth in the same period of previous year. While the growth rate of exports of goods moderated from 9.3% in Q1 to 5.5% in Q2 and Q3, largely because of the fading base effects in early 2016, the growth trend of overall external performance remained unchanged. Moreover, exports of goods to most destinations continued to post solid growth, in particular to the emerging markets like India and ASEAN countries. At the same time, the growth of imports of goods outpaced those of exports, leading to wider trade deficits.

Exports of services returned to a mild positive growth. Since the inbound tourism reached its peak in 2013 and 2014, both tourism and retail sectors have undergone a period of structural adjustment. Even though the number of visitor arrivals has already reversed its downtrend and grew 2.7% year-on-year in the first ten months of 2017, the spending pattern of inbound tourists has changed from focusing mainly on luxury goods and jewelries to more diversified products. This resulted in a lower tourism spending per capita and negatively affected the performance of inbound tourism as well as overall exports of services. After three years of adjustment, exports of travel services still declined 0.4% year-on-year in real terms in the first three quarters of 2017, whereas Q3 growth returned to a positive reading of 1.8%, the first increase after 13 consecutive quarters of decline. In addition, the global economic sentiment became more optimistic, together with the low interest rate environment, stabilizing RMB exchange rate, as well as further connection between the Mainland and Hong Kong capital markets, the Hang Seng Index reached the highest level in nearly 10 years and the daily transaction value increased to over $100 billion level. All these contributed to the 4.1% increase in financial services exports in Q3. Moreover, exports of transport services also improved moderately alongside the global economic recovery and vibrant regional trade and cargo flows. As a result, overall exports of services reversed its downtrend and posted 3.0% and 3.7% year-on-year growth in real terms in the first three quarters and Q3 respectively.

Domestic demand improved notably. Against the stronger external backdrop, the domestic demand of Hong Kong also strengthened, together with the support of full employment, and buoyant financial and property market performance. Real private consumption expenditure increased solidly by 5.3% and 6.7% year-on-year in the first three quarters and Q3 of 2017 respectively, with the latter reporting the fastest growth rate since Q2 2015. The government consumption expenditure also provided some support to the economy, with 3.5% and 4.1% growth in real terms in the first three quarters and Q3 respectively. Moreover, business confidence improved over the past year. Gross domestic fixed capital formation increased 3.7% in real terms in the first three quarters, though it recorded a slight decline of 1.7% in Q3. The decline in Q3 was due to a decrease in machinery and equipment acquisition, a volatile component. Nevertheless, building and construction expenditure accelerated, rising by 5.0% and 4.1% in real terms in the first three quarters and Q3 respectively, partially offsetting the weak performance in expenditure on machinery and equipment.

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Content provided by Bank of China (Hong Kong)
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