Further slowdown in GDP growth in Q2; Better business prospects for H2
Aug 18, 2014, Hong Kong - Hong Kong’s GDP growth slowed on a year-on-year (y-o-y) basis in Q2 2014, up by a mere 1.8% after registering 2.6% in Q1 2014. This marked not only the third consecutive quarter of slowdown in y-o-y growth but is also the slowest for a quarter since Q3 2012, highlighting the fragility in some economic aspects. Labour market conditions, however, remained healthy with the unemployment rate staying at a low-3% level, providing strong support for underlying mass residential demand.
The slowdown in economic growth was mainly attributed to the weaknesses in the retail sector. Tourist spending fell against a backdrop of near double-digit growth in tourist arrivals suggesting a decline in per capita spending and caused Hong Kong’s exports of services to fall by 2.3% y-o-y in Q2 2014. On the domestic front, private consumption expenditure registered only a 1.2% y-o-y growth in Q2 2014, down from 1.5% in Q1 2014 and 3.6% in Q4 2013. The gradual improvement in global trade demand, however, helped lift Hong Kong’s exports growth to reach 2.3% y-o-y in Q2 2014, up from 0.5% in the first quarter.
H2 2014 should see a relative improvement in economic growth momentum although the government downgraded Hong Kong’s full-year GDP forecast from 3%-4% to 2%-3% because of the weaker-than-expected performance in H1 2014. The implementation of the Shanghai-Hong Kong Stock Connect scheme in October will likely create positive spins for Hong Kong’s financial market, benefiting particularly the stock trading and wealth management sectors. This is expected to bring along new and additional office demand for Hong Kong’s office market. However, with most MNCs remaining cautious towards expansions, any improvement in occupier demand will only be mild and progressive and CBRE expects rents in the Central CBD to remain broadly flat for the rest of this year. In addition, the overall business environment will, to a certain extent, depend on how the prevailing political tension between the government and the pro-democracy parties would develop and if protests such as Occupy Central will disrupt day-to-day businesses operations in Hong Kong.
Figure 1: Hong Kong Real GDP Growth (y-o-y)
Source: Census and Statistics Department, July 2014
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