Hong Kong: Growth momentum strengthens in Q4
February 22, 2017
Hong Kong’s economy ended 2016 on a solid footing as tailwinds from rising tourist arrivals and gradually improving retail sales propelled private consumption, while a pick-up in global demand boosted export growth. GDP expanded 3.1% in Q4 over the same quarter of the previous year, which was above the revised 2.0% increase in Q3 (previously reported: +1.9% year-on-year). The print beat market expectations of 1.6% growth and represented the fastest acceleration since Q2 2015. In the full year 2016, the economy grew 1.4%, below 2015’s 2.4% rise.
Private consumption logged 3.2% growth in Q4 (Q3: +1.2% yoy) as the tourism sector has started to recover and low inflation has increased real wages. Growth in government consumption steadied in Q4, although it still managed to expand a healthy 3.3% annually in Q4 mainly due to Hong Kong authorities’ fiscal support. On the downside, fixed investment decelerated in Q4 due to rising global uncertainties.
On the external side of the economy, exports of goods and services were up 4.5% in Q4 (Q3: +1.6% yoy), the largest increase in four years. The island benefited from a pick-up in global demand, particularly from China. Similarly, imports grew a hefty 5.0% in Q4 (Q3: +2.7% yoy), reflecting solid domestic demand and higher commodities prices. As a result, the external sector’s net contribution to overall economic growth rose from minus 2.1 percentage points in Q3 to minus 0.9 percentage points in Q4.
On a quarter-on-quarter basis, Hong Kong’s economy grew a seasonally-adjusted 1.2% in Q4, which was above Q3’s 0.8% increase.
Despite Q4’s positive result, a number of factors are threatening to daunt Hong Kong’s healthy growth momentum. Rising protectionism, an abrupt slowdown in China and political uncertainty in the European Union are all casting a long shadow on the island’s economy. In an attempt to shield Hong Kong’s economy against external shocks, on 22 February, Financial Secretary Paul Chan Mo-po announced a series of one-off measures, including an increase in salary tax deduction and a boost in infrastructure spending.
Author: David Ampudia, Economist