7 Sept 2018
Hong Kong's Economic Outlook and Opportunities from the National Policies
Since the beginning of 2018, Hong Kong's economy has held up fairly well. The real GDP increased by 4.6% in the 1st quarter. The expansion momentum carried over into the 2nd quarter with a yearly growth of 3.5%. Overall, the economy grew by 4% in real terms in the 1st half of 2018, which was roughly in line with the growth pace in the same period of 2017. It was also the highest growth rate since 2011. While the economic expansion accelerated further, the growth components were getting relatively balanced. Both external demand and domestic consumption remained strong or even booming in the 1st half of the year. Total export of goods grew by 5.2% in real terms in the 1st quarter and 4.6% in the 2nd quarter. Private consumption expenditure jumped by 8.8% in real terms in the 1st quarter with another increase of 6.1% in the 2nd quarter. In addition, investment spending remained stable at an elevated level, and the HKSAR Government’s fiscal position continued to be solid; the labor market kept buoyant with the unemployment rate edging down to a low of 2.8%; the overall inflation pressure was moderate at around 2%. Based on an array of data, the Hong Kong economy is currently in favorable conditions, while a higher and faster growth is mainly constrained by supply side related to labor and land.
Trade frictions as the biggest uncertainty
Looking ahead, at present, the biggest uncertainty facing the Hong Kong economy is the global trade disputes raised by the United States (US), the China-US trade friction in particular. Due to the uncertain prospects for exports, Hong Kong companies face certain difficulties in taking orders, pricing and business development. The China-US trade frictions will have a material impact on the Hong Kong economic activities, also affect the business confidence. It can be seen from three levels:
1. Trade. In 2017, Hong Kong handled US$45 billion worth of re-exports between the Mainland China and the US, accounting for 9% of Hong Kong's total exports and 4% of total trade. Of this, US$36 billion of re-exports were from the Mainland China to the US, and US$900 million of re-exports were from the US to the Mainland China. As the US has imposed a 25% additional tariff on US$50 billion of Chinese imports, the affected Hong Kong re-exports to the US is estimated at about HK$46.5 billion, accounting for 16.6% of Chinese re-exports to the US through Hong Kong in 2017. If another round of 25% additional tariff is imposed on US$200 billion of Chinese imports, the affected value of Hong Kong re-exports to the US is estimated at about HK$83.6 billion, accounting for 29.8% of Chinese re-exports to the US through Hong Kong in 2017. The trade concerned from the two tariff lists would total around HK$130 billion, accounting for 46.3% of Chinese re-exports to the US through Hong Kong in 2017.
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