The Hong Kong economy grew notably by 4.3% in the first quarter of 2017 over a year earlier, sustaining the improving trend that began in the second quarter of last year, and beating the 3.7 percent rise expected by economists. That’s the fastest pace since 2011.
External demand continued to strengthen as the global economic environment further improved. Domestic demand also held up well, supported by favorable employment conditions and more positive business sentiment.
On a seasonally adjusted quarter-to-quarter comparison, real GDP grew further by 0.7% in the first quarter, after three consecutive quarters of rapid growth, averaging 1.2% per quarter.
Growth in exports
On the back of strengthening global demand and continued expansion in regional trading and manufacturing activities, Hong Kong’s total exports of goods grew briskly by 9.2% year-on-year in real terms in the first quarter, marking the fastest growth since the first quarter of 2013.
Exports of services likewise picked up to a 2.6% year-on-year growth in real terms, benefitting from stronger trade and cargo flows as well as better global economic sentiment.
With visitor arrivals resuming growth gradually, exports of travel services also continued to see relative improvement after a prolonged period of setback.
Consumer spending perks up
The domestic segment stayed resilient. Private consumption expenditure sustained a solid year-on-year growth of 3.7% in real terms in the first quarter, as local consumer sentiment was well underpinned by favorable job and income conditions and, to some extent, the relatively buoyant asset market performance.
Overall investment expenditure increased notably by 6.4% year-on-year in real terms, thanks to the strong expansion of building and construction activity, despite the continued fall in machinery and equipment acquisition.
The labor market remained in a state of full employment, with total employment rising to a new quarterly high in the first quarter.
The seasonally adjusted unemployment rate eased to 3.2% in the first quarter, a low level last seen in the second quarter of 2014, and the underemployment rate also fell to a three-year low of 1.2%.
Wages and earnings showed further real improvements on the back of a tight labour market.
Local stock market rallied
The local stock market rallied during the first quarter, alongside the worldwide increase in risk appetite that also fueled many overseas stock markets.
Global investors reacted positively to the improving global outlook despite the interest rate normalization in the US and various policy and political uncertainties in the US and Europe. Separately, the residential property market showed some reactivation during the first quarter, with both flat prices and trading activities picking up.
Looking ahead, the global economy is likely to gradually improve further, given that many advanced economies are poised for sustaining modest to moderate growth and that the Mainland economy is firmly on track to attain medium-to-high growth.
The ensuing recovery in global demand should continue to render support to Asia’s trade flows in the near term and hence to Hong Kong’s export performance.
Also, the recent revival in visitor arrivals, if continued, could give an extra lift to our exports of services in the period ahead.
However, downside risks in the external environment, though receded somewhat, still warrant attention. These include the US interest rate normalization, policy divergence among major central banks, Brexit-related negotiations, and various uncertainties surrounding policy and political developments in the US and Europe.
Impact of protectionism
Moreover, the possible rise of protectionist sentiment and elevated geopolitical tensions in various regions are also potentially destabilizing factors.
Overall, the actual growth outturn in the first quarter is better than expected amid the strengthening of global demand conditions.
Nevertheless, as the global economic outlook is still subject to various uncertainties, the forecast real GDP growth of 2-3% for 2017, as announced in the Budget, is maintained in the current round of review.
There is upside to the forecast if the global economy continues to improve and the downside risks do not materialize in the period ahead.
The Government will continue to closely monitor the external developments and their possible ramifications on the Hong Kong economy.
Underlying consumer price inflation moderated to 1.4% in the first quarter. Inflation pressure was generally tame, though the low inflation rate in the first quarter was also partly due to some incidental factors that created a high base of comparison in the same quarter of last year.
Taking into account the still-benign inflation in major import sources, moderate rises in local costs, and continued feed-through of softer fresh-letting residential rentals last year, consumer price inflation should remain well contained in the near term, according to the government.