Banking Crisis

Hong Kong Growth Forecast Downgraded Amidst Growing Uncertainty

Henry Chambers Asia Assistant 17 October 2012

Hong Kong Growth Forecast Downgraded Amidst Growing Uncertainty

Hang Seng Bank, the Hong Kong-based lender owned by HSBC, has slashed its 2012 GDP growth forecast for Hong Kong by a quarter, in light of continued global economic instability.

In a note the bank said: “There is little hope that the Hong Kong economy will escape its slow growth trajectory any time soon.” 

Initially projected to be a moderate 2 per cent, the bank’s treasury division has reduced its forecast to 1.5 per cent in light of continued global economic instability. Analysts identified a lower than expected demand for exports and weak retail sales as the key contributing factors to this diminution in its report.
 
The projected figures for 2012 are decidedly “feeble” in comparison to 2011. Real GDP growth has fallen from last year’s promising 4.9 per cent, export growth has shrunk from 10.1 per cent to 1.0 per cent and the growth in value retail sales has fallen from 24.8 per cent to 10 per cent. The slow down in growth has had some resultant positive effects. Consumer price inflation, is expected to fall to 3.8 per cent, down from last year’s 5.4 per cent.

Hang Seng was cynical in its appraisal of the US Federal Bank and European Central Bank’s continued attempts at quantitive easing as a means of re-invigorating the world economy. “Shifts in monetary policy tend to be more effective when they come as a surprise… Q.E [is] not a cure-all for economic ills.” The report stressing how serious the continued instability of the euro and the possible "fiscal cliff" facing the US were to the performance of Hong Kong's economy.
 
With exports to the EU down 16.3 per cent and the US down 5.4 per cent, a more stable future for Hong Kong’s economy will need to be achieved through a reduced reliance on exports and a serious growth of domestic demand. However, shipments to mainland China did rise 8.5 per cent in August, and this “stable” demand from the worlds second largest economy is somewhat of a balm, considering the otherwise meager demand for exports.
 
The fall in retail sales appears to fly in the face of an increased inflow of tourists to Hong Kong. Despite a 15 per cent rise in the number of tourists visiting town, growth was muted at 1.4 per cent and 3.2 per cent respectively for July and August, falling well below the 9.0 per cent expansion in the first two quarters. The report attributed the fall to a possible shift in consumer preference, specifically mainlanders looking to buy their luxury goods in Europe, as opposed to Hong Kong.
 

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