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Economic outlook for the first quarter


Affected by the US-China trade conflict and other unfavourable factors, the global economy did not have a good start at the beginning of this year as expected. Although the US economy performed better than expected in the first quarter, showing growth by 3.2% on a quarter-to-quarter annualised basis, that was indeed partly driven by a surge in inventory, while the growth in personal consumption expenditure and private fixed investment moderated to merely 1.2% and 1.5% respectively and imports of goods declined by 4.4%. The Composite Purchasing Managers’ Index of the Eurozone still remained at a low level, and very a modest economic growth in the first quarter is expected. Manufacturing and trading activities in most of the Asian economies were weak in the first quarter. Amongst which, the Gross Domestic Product (GDP) of Singapore and Korea showed slowdown on year-on-year growth in the first quarter.

Under such circumstances, one would not expect Hong Kong’s economy to have substantial growth in the first quarter. Indeed, the volume of merchandise exports fell by 4.8% year-on-year in the first two months combined this year, similar to the situations in many other Asian economies. Over the same period, the value of retail sales also declined by 1.6%, reflecting that consumer sentiment remained cautious. Yet, the further notable increase in visitor arrivals in the first quarter continued to render support to exports of services.

Last year, the changes and increased uncertainties in the political and economic environment have constrained the growth of Hong Kong’s economy, with growth rate slowing down from 4.6% in the first quarter to 3.5% in the second quarter, to 2.8% and 1.3% in third and fourth quarter respectively. Based on the currently available figures and coupled with the high base of comparison resulting from the strong growth in the first quarter last year, we expect a modest year-on-year economic growth in the first quarter of 2019, which will be much lower than that in the fourth quarter of last year.

Having said that, there have been positive developments in both the global and local economy currently. The Mainland economy stabilised in March, with a 6.4% real GDP growth recorded in the first quarter, which is on par with that in the fourth quarter last year and higher than market expectation. Moreover, the US-China trade talks have been progressing well so far this year and there is a chance for the two sides to reach a deal. If the trade issues could be resolved to some extent and part or all of the tariffs previously imposed could be lifted, global economic sentiment will be boosted, facilitating the growth of Hong Kong’s economy. In fact, sentiment of the global financial market has been positive in the recent months, and the local stock market has been going up, reflecting the market’s expectation for the US and China to reach a trade deal.

Locally, our labour market remained robust. Unemployment rate held steady at a low level of 2.8% in first quarter of 2019, providing a stabilising effect on local consumption. Moreover, the results from the latest Census and Statistics Department (C&SD)’s Quarterly Business Tendency Survey for large enterprises indicated that, business sentiment among large enterprises in Hong Kong showed evident relative improvement of late. The proportion of large enterprises expecting their business situation to be better in the second quarter was outweighed by the proportion of those expecting their situation to be worse by just 1 percentage point, a notable narrowing in the difference from the 12 percentage points in the preceding quarter. At the same time, the Hong Kong SME Leading Business Index recently released by the Hong Kong Productivity Council increased sharply by 5.6 to 46.0 in the second quarter this year. The result indicates that business sentiment for SMEs has showed signs of stabilisation.

Around two weeks ago, the International Monetary Fund (IMF) revised downwards its global economic growth forecast for this year again to 3.3%, lower than the 3.6% growth in 2018, also the slowest pace of growth since 2009. The IMF anticipated that while global economic growth would remain weak in the first half this year, a pick-up is expected in the second half.

When I prepared the Budget at the beginning of this year, I forecast economic growth of 2-3% for Hong Kong in 2019, taking into account the sluggish global economic growth in the first half of the year. I have also proposed one-off relief measures in the Budget. If the US and China, as expected by the market, enter into a trade agreement shortly, we anticipate that both the global and local economy will be improved in the later part of this year.

Nonetheless, the uncertainties and changes of the external environment are still acute. We should not be too optimistic. As pointed out by President Xi Jinping, the world is facing the turbulent situation that we have ever met in the previous one hundred years. I reckoned that the deep-seated differences between the US and China may take longer time to reconcile. The fluctuating relations between the two sides may cause volatility in the global economy from time to time. Apart from that, other uncertainties including Brexit, geopolitical tensions and domestic politics in some advanced economies such as the EU and the US also warrant attention. While the global stock market has showed a notable rebound since the beginning of this year, any changes in external risk factors may hinder its performance. We have to stay vigilant.

In addition, starting from the reference period of the first quarter of 2019, the C&SD will advance the first release of the quarterly GDP to around one month after the reference period. Therefore, the first release of the GDP report, i.e. the advance estimates, will be issued on 2 May. When more statistical data are ready, C&SD will compile and release a set of revised figure. The revised GDP figure for the first quarter of 2019, together with the Government’s latest economic forecasts for 2019, will be announced on 17 May.

April 28, 2019