Hong Kong posts modest third-quarter growth, braces for China slowdown

Chinese tourists walk past an advertisement board at Hong Kong's shopping district Tsim Sha Tsui, China,
Chinese tourists (R) walk past an advertisement board at Hong Kong's shopping district Tsim Sha Tsui, China, September 21, 2015. REUTERS/Tyrone Siu

November 13, 2015

By Donny Kwok

HONG KONG (Reuters) – Hong Kong’s economy proved more resilient than expected in the third quarter, despite China’s slowdown and weaker retail sales as fewer tourists streamed across the border on shopping sprees.

As an open economy on China’s doorstep, Hong Kong is vulnerable to headwinds that now include a slowdown in the world’s second-largest economy and broader uncertainty over U.S. monetary policy, due to the city’s currency peg to the dollar.

The financial hub’s economy grew a seasonally adjusted 0.9 percent quarter-on-quarter in the three months to September, government data showed on Friday, picking up from a 0.4 percent pace in the second quarter and 0.7 percent in the first quarter.

From a year earlier, the economy expanded 2.3 percent in the third quarter. Four economists surveyed by Reuters estimated the economy would grow 0.4 percent in the third quarter from the second, and 1.8 percent from a year earlier.

The government said the outlook for merchandise exports was “bleak”, while inbound tourist number would remain weak, putting pressure on retailers with possible job losses.

“I can’t be be overly optimistic,” said Helen Chan, a government economist, when asked about economic growth next year. “Going forward, there are many uncertain factors.”

Despite these pressures, Chan said robust domestic demand for goods and services, had helped buttress the economy, with the government seeing economic growth of 2.4 percent for the full year, still within its previous 2-3 percent range.

TOURISM UNDER PRESSURE

Going forward, Beijing’s anti-corruption campaign and a weaker yuan has curbed Chinese spending while a volatile stock market has hurt retailers.

Hong Kong’s comparatively high rents and wages have also hurt companies as fewer Chinese tourists, who make up about three quarters of overall visitors, come to snap up handbags, watches and designer clothing.

“Given the slowdown in inbound tourism, the possible spillover on the job market remains a source of concern,” Chan said.

Earlier this week, China’s top jewellery retailer by market value, Chow Tai Fook Jewellery Group <1929.HK>, said it expected first-half net profit to drop by up to 50 percent due to subdued spending in Hong Kong and Macau.

An interest rate hike by the U.S. Federal Reserve could trigger capital outflows, but the local currency’s dollar peg means that Hong Kong authorities tend to follow U.S. rate moves. That could pile more pressure on the strong Hong Kong dollar.

“A (potential) rate hike in the U.S. will further impact Hong Kong,” said Thomson Cheng, head of the Hong Kong Retail Management Association. “With the strength of the local currency, neighboring countries will appear to be more attractive to tourists than Hong Kong. It will be painful.”

(Reporting by Donny Kwok; Writing by James Pomfret; Editing by Jacqueline Wong)