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Hong Kong’s Economic Growth to Remain Moderate in the Second Half

In the first quarter of 2015, Hong Kong economy expanded 2.1% in real terms over the same period of last year, slightly slower than the 2.4% in the previous quarter and lower than 3.9% average over the past decade. The first quarter growth continued its 2.4% moderate growth trend since 2012. The subdued global economic recovery, weak trade-related activities, moderating Mainland economic momentum as well as the local labour and land constraints were the causes of Hong Kong’s moderate growth over the past few years. Hong Kong economy is not likely to return to the around 4% growth in the past, and a 2%-3% growth trend is likely to be the new normal.

Weak external and moderate domestic growth continued in the first half

In the first quarter, Hong Kong economy was primarily supported by domestic demand, while external demand remained sluggish. Among the 2.1% real growth in the first quarter, domestic demand contributed 2.8 percentage points, in line with last year, while net exports subtracted 0.7 percentage points, weaker than the 0.3 percentage points drag last year. The poor performance of net exports was not only reflected on exports of goods, but also exports of services. The real exports of goods are likely to be held at around 1% in April after allowing for price effect, sustaining the sub-1% growth in the past three quarters. The weak trade performance was a result of the subdued global economic recovery and strong US dollar exchange rate. Real exports of goods to the European Union (-3.5%), Japan (-5.8%) and the Mainland (-0.2%) all posted negative growth in the first quarter, while those to the more steady US recorded expansion (3.3%).

Comparing to exports of goods, the real exports of services were even weaker in the first quarter. In three out of the past four quarters, real exports of services registered contraction over the same period of the previous year, largely dragged by the exports of tourism and trade-related services. In relation to the tourism activities, the growth of the number of visitors decelerated notably and their spending pattern also shifted. As such, the real exports of tourism services recorded four consecutive quarters of negative growth in the first quarter. The growth of the number of overall and Mainland visitors plunged from 12.0% and 16.0% in 2014 to 3.9% and 6.9% in the first four months of 2015 respectively. Among them, the number of higher-spending overnight visitors and overnight Mainland visitors even declined 3.6% and 3.7%. However, the adverse impact of the “one trip per week policy” for Shenzhen residents has not been surfaced. In addition, the competitiveness of Hong Kong tourism industry is weakening amid stronger Hong Kong dollar exchange rate, high rental level and lack of new tourism hot spots etc. Separately, the real exports of trade-related activities also contracted 1.1% in the first quarter, in line with the poor exports of goods and subdued global trade performance.

Fortunately, the domestic demand remained resilient, supported by the stable employment market and buoyant asset markets, offsetting the negative shock from the external environment. Despite the relatively slow economic growth over the past few years, the employment market remains stable. The seasonally-adjusted unemployment rate held at 3.2% between March and May 2015 and hovered at the lower end of its 3.1%-3.5% range since the second half of 2011, propelling continuous income growth. Moreover, the asset markets remained buoyant. The residential property price increased 21.3% in April over the same period of last year. The Hang Seng Index also broke the 25,000 resistant level since the global financial crisis. This has supported private consumption performance, which grew 3.5% in real terms in the first quarter. On the other hand, the government consumption expenditure also increased steadily by 3.5%. Investment spending accelerated to 7.3% in the first quarter, largely driven by strong increases in machinery and equipment spending. Moreover, buildings and construction recorded modest growth. Going forward, businesses are likely to remain cautious towards raising investment spending, given the lingering uncertain external environment.

Inflationary pressure eased somewhat. With the decline of international energy and food prices, global inflationary pressure was also retreating. Together with the moderating economic growth locally, inflationary pressure remains contained in the short term. In the first four months of 2015, the underlying composite consumer price index stood at 2.6%, lower than the 3.5% in 2014.

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Content provided by Bank of China (Hong Kong)
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