Mild Hong Kong third-quarter GDP growth seen despite consumption slump

Shoppers admire the financial Central district skyline of Hong Kong, as Typhoon Linfa approaches the city
Shoppers admire the financial Central district skyline of Hong Kong, China July 9, 2015. REUTERS/Bobby Yip

November 12, 2015

By Donny Kwok and James Pomfret

HONG KONG (Reuters) – Hong Kong’s economy likely grew slightly in the third quarter despite a slowdown in China and weaker retail sales as fewer mainland Chinese stream across the border on shopping sprees.

Gross domestic product for the July to September quarter was expected to expand 0.4 percent from the second quarter, according to the average estimate of four economists surveyed by Reuters, matching the pace of the April-June quarter.

From a year earlier, the economy was estimated to grow 1.8 percent in the third quarter, down from 2.8 percent in the second quarter.

As a free and open economy on China’s doorstep, Hong Kong’s economy has long been vulnerable to external 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.

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

Hong Kong’s economy grew 2.6 percent in the first half of 2015, year-on-year, helped by resilient domestic demand, but some now expect a tougher second half. Beijing’s anti-corruption campaign and a weaker yuan has curbed Chinese spending while a volatile stock market has hurt retailers.

“It is a worrisome picture of the overall economy with the retail sector appearing to be the biggest victim,” said Chris Leung, an economist at DBS Bank. “With very few tourists and shoppers around, it is a visual fact that doesn’t need to wait for any figures (to confirm).”

Hong Kong’s Financial Secretary, John Tsang told Reuters that the financial hub was looking at a “new normal” economic growth rate of 2-4 percent, about half the pace at which it grew in 2011, as its export-dependent economy grapples with a slowdown in China and elsewhere.

Total tourist arrivals in September slipped 4 percent from a year earlier.

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.

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.

Burberry Group plc <BRBY.L> also said on Thursday a double-digit drop in Asia revenues was largely because of falling demand from tourist shoppers, mainly in the core markets of Hong Kong, Macau and South Korea.

(Editing by Jacqueline Wong)