August 12, 2017 3:11 am JST

Hong Kong paints rosier economic outlook for 2017

Healthy consumer spending raises confidence in faster growth

YASUO AWAI, Nikkei staff writer, and KENJI KAWASE, Nikkei deputy editor

Hong Kong government upgraded its full year growth forecast to 3~4% on solid private consumption. (Photo by Kenji Kawase)

HONG KONG -- Real gross domestic product in Hong Kong grew 3.8% from a year earlier in the second quarter of 2017, the government said Friday, a strong showing that prompted an upgrade of the full-year forecast.

The pace of growth was not as fast as the 4.3% expansion in the January-March quarter, but it still exceeds the 2.9% average for the past decade.

Quarter on quarter, the Hong Kong economy grew 1% from the seasonally adjusted January-March result, beating the 0.6% market consensus and quickening from 0.7% in the first quarter. The solid GDP performance was attributed to continued improvement in exports to Asia and robust consumer spending. The Hong Kong government raised its economic growth outlook for 2017 by 1 percentage point to 3-4%.

Rising wage income amid full employment and the wealth effect from high stock prices were also driving forces behind the second-quarter GDP growth, said acting government economist Andrew Au Sik-hung.

Private consumption expenditure grew briskly, up 5.3% in real terms, accelerating from the 3.9% increase in the first quarter. On top of the favorable labor market conditions and wealth effect, the government pointed to a sizable jump in residents' expenditures abroad. The difference in timing of the Easter holidays, which fell in late March last year but mid-April this year, added to this effect.

Private-sector economists are generally on the same page. Chang Liu, China economist at Capital Economics, said in a note Friday that the "data show that Hong Kong's economy continued to expand at a rapid pace last quarter."

However, Chang foresees a slowdown in upcoming quarters. While export growth is expected to remain resilient against a backdrop of solid external demand, he raises concern over the heated property market, where residential prices have been running at a record high level, despite a series of cooling measures by the government.

"But if we are right that interest rates in the city will rise over the months ahead, it could precipitate a slump in the city's property market," Chang said. As over 90% of new mortgages in the territory are priced off interbank rates, an interest rate hike "would lead to a sharp downturn in private consumption and real estate investment."

Hong Kong's currency is pegged to the dollar under the currency board arrangement, putting the territory's base lending rate in lockstep with the U.S. Federal Reserve's rate.

For the full year, Chang projects Hong Kong's economic growth at around 3.3%, within the range of the government forecast. But he expects the pace will slow to 1.5% in 2018.

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