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Third-quarter GDP Preview: Staying on Course for Recovery

From HKTDC Research, 5 November 2013

On 15th November, the overall picture on how the Hong Kong economy has been travelling for the third quarter of 2013 will emerge with the GDP data. Macroeconomic data in hand implies the real economy grew at around trend pace in the third quarter, rising 3.5% compared the 3.3% increase registered in the previous quarter.

The underlying themes that we initially expected from the national accounts, however, remain unchanged. Growth would mainly come from better external trade balance, while contribution from domestic demand is likely to have been weakened. The swing in net exports will add a solid 1 percentage point to the third-quarter GDP growth, countering the impact of waning investment.

Overall, the economy is bottoming out but the pick-up is gradual and uneven. Three components of demand – investment, consumption and net exports – show no sign of taking off. More importantly, there is no shortage of uncertainty that may dent economic growth going forward. Renewed weakness in US demand and a moderating trend in the Mainland’s September activity data warrant our caution. We think the recovery is unlikely to accelerate noticeably until well into 2014.

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Read more in HKTDC Research.

Shanghai takes on Hong Kong and Qianhai

16 October 2013
With the establishment of the China (Shanghai) Pilot Free Trade Zone, should Hong Kong feel threatened?

It should, according to a senior executive of professional accounting body CPA Australia.
"In three years' time, the Shanghai free trade zone (FTZ) will pose a serious threat to Hong Kong [as a leading Asian financial hub] as Shanghai allows foreign banks to set up joint ventures inside the zone," Peter Lee, divisional president for the Greater China region of CPA Australia, told the Hong Kong Economic Journal's EJ Insight in an interview.
Global companies will choose to set up headquarters in the experimental economic zone where they will enjoy a wide array of supportive measures from the government, Lee said.

Read more in HKTDC Research.

Government departments studying policies to encourage consumption

From HKTDC Research, 14 May 2013

Shen Danyang, press spokesperson of the Ministry of Commerce (MOFCOM), noted that the relevant government departments are studying policies to encourage consumption. He added that such policies would not be formulated solely by MOFCOM, but a host of administrative departments overseeing the macro economy.

According to Shen, the total retail sales of consumer goods in the first quarter of this year rose by 12.4% year-on-year. The growth rate is down slightly when compared to the same period last year. However, after adjusting for price changes, the actual growth rate is just 0.1 percentage point lower. In other words, the growth rate this quarter is basically on a par with that of the year-earlier period.

"Consumption in March was higher than the two preceding months. Overall, the consumer market was growing slowly but steadily in the first quarter," Shen said. Meanwhile, consumption has played a bigger role in driving the economy. In the first quarter, consumption contributed 55.5% towards GDP growth. The figure was 3.7 percentage points higher than that of the whole of last year.

"The slowdown in the growth rate of the consumer market is only in terms of nominal growth. The reasons are many, but we believe there are four main ones," Shen said. First, there was a slowdown in the growth rate of commodity prices. Retail prices of commodities in the first quarter increased by 1.4%, representing a 2.1 percentage point drop from that of the same period last year and resulting in a slower growth rate in consumption in nominal terms. Second, car sales and consumption of petroleum and related products experienced a relatively greater drop in light of the policies implemented in some regions to restrict the purchase and use of cars as well as the influence of the weather. Third, measures on curbing extravagant spending have proved effective. Fourth, the growth in income in urban and rural areas has slowed down. In the first quarter, the growth rates in real terms of urban residents' per capita disposable income and rural residents' income in cash have fallen by 3.1 percentage points and 3.4 percentage points respectively compared to the corresponding period last year.

On the performance of the consumer market this year, Shen believed that the outlook is optimistic. Barring any major mishaps, the total retail sales of consumer goods this year are expected to "begin at a low level but rise later". As the macro economy takes a turn for the better and the investment environment for the consumer market improves, the growth rate in consumption is set to pick up in the third and fourth quarters. The target growth rate of 14.5% for the whole year may still be achieved.


Macroeconomic outlook update

As a small open economy, Hong Kong (HK) has not been immune to recent fluctuations in both global and Chinese economic activity. The latest data suggest the economy is losing some steam as it heads into the second quarter. While seasonal distortions explain some of the softening, there seems to be an underlying loss of momentum.

Disappointing manufacturing PMI data for April underlined the fading momentum. The manufacturing sector took a turn for the worse in April, seeing a deterioration in overall operating conditions for the first time since last September. Indeed, the index fell to a seven-month low of 49.9 from 50.5 in March, partly reflecting the still fragile nature of the Chinese recovery. Moreover, retail sales activity cooled in March, providing further signs of a slackening in economic growth. On a positive note, exports ticked up in March, surprising to the upside with a 11.2% increase year-on-year. The better-than-expected reading is partially driven by the growth in intra-regional trade. Meanwhile, labour force figures released last month show HK's labour market remains resilient in the face of uncertainties in the global economy. Specifically, the seasonally adjusted unemployment rate has hovered around 3.5% for quite some time.