As a small open economy, Hong Kong (HK) has not been immune to recent fluctuations in both global and Chinese economic activity. The latest data suggest the economy is losing some steam as it heads into the second quarter. While seasonal distortions explain some of the softening, there seems to be an underlying loss of momentum.

Disappointing manufacturing PMI data for April underlined the fading momentum. The manufacturing sector took a turn for the worse in April, seeing a deterioration in overall operating conditions for the first time since last September. Indeed, the index fell to a seven-month low of 49.9 from 50.5 in March, partly reflecting the still fragile nature of the Chinese recovery. Moreover, retail sales activity cooled in March, providing further signs of a slackening in economic growth. On a positive note, exports ticked up in March, surprising to the upside with a 11.2% increase year-on-year. The better-than-expected reading is partially driven by the growth in intra-regional trade. Meanwhile, labour force figures released last month show HK's labour market remains resilient in the face of uncertainties in the global economy. Specifically, the seasonally adjusted unemployment rate has hovered around 3.5% for quite some time.

In our view, the current weakness we are seeing in the economic data may be short-lived as we expect the global demand for exports to continue to accelerate albeit gradually, giving some underpinning to local manufacturers and hence the overall economy. We believe that the economic growth can still pick up at a steady pace this year, provided that China remains on track to post a gradual recovery and we do not see a pronounced deterioration in the global economic environment. That said, the pace of improvement will likely be slow in the coming few months and a notable GDP rebound will not take place until the second half of the year, in our view. Although this poses downside risks to our full-year GDP growth projection of 3.5%, it doesn't imply a change in the recovery path for the remaining quarters of this year.

From HKTDC Research, 14 May 2013

Shen Danyang, press spokesperson of the Ministry of Commerce (MOFCOM), noted that the relevant government departments are studying policies to encourage consumption. He added that such policies would not be formulated solely by MOFCOM, but a host of administrative departments overseeing the macro economy.

According to Shen, the total retail sales of consumer goods in the first quarter of this year rose by 12.4% year-on-year. The growth rate is down slightly when compared to the same period last year. However, after adjusting for price changes, the actual growth rate is just 0.1 percentage point lower. In other words, the growth rate this quarter is basically on a par with that of the year-earlier period.

"Consumption in March was higher than the two preceding months. Overall, the consumer market was growing slowly but steadily in the first quarter," Shen said. Meanwhile, consumption has played a bigger role in driving the economy. In the first quarter, consumption contributed 55.5% towards GDP growth. The figure was 3.7 percentage points higher than that of the whole of last year.

"The slowdown in the growth rate of the consumer market is only in terms of nominal growth. The reasons are many, but we believe there are four main ones," Shen said. First, there was a slowdown in the growth rate of commodity prices. Retail prices of commodities in the first quarter increased by 1.4%, representing a 2.1 percentage point drop from that of the same period last year and resulting in a slower growth rate in consumption in nominal terms. Second, car sales and consumption of petroleum and related products experienced a relatively greater drop in light of the policies implemented in some regions to restrict the purchase and use of cars as well as the influence of the weather. Third, measures on curbing extravagant spending have proved effective. Fourth, the growth in income in urban and rural areas has slowed down. In the first quarter, the growth rates in real terms of urban residents' per capita disposable income and rural residents' income in cash have fallen by 3.1 percentage points and 3.4 percentage points respectively compared to the corresponding period last year.

On the performance of the consumer market this year, Shen believed that the outlook is optimistic. Barring any major mishaps, the total retail sales of consumer goods this year are expected to "begin at a low level but rise later". As the macro economy takes a turn for the better and the investment environment for the consumer market improves, the growth rate in consumption is set to pick up in the third and fourth quarters. The target growth rate of 14.5% for the whole year may still be achieved.

From the International Edition of HKTDC

10 April 2013

Robert Beynat, Chief Executive of Vinexpo

New data confirms what the plethora of wine businesses pouring into Hong Kong already know: the city is the most mature, most vibrant, wine market in Asia.

The latest International Wine and Spirit Research (IWSR), commissioned by Vinexpo, covers 28 producer countries and 114 wine and spirits markets.

Robert Beynat, Chief Executive of Vinexpo, said that with overall wine and spirits sales of US$142.5 billion in 2011, including US$18.6 billion worth of wine, in the Asia-Pacific, the regional industry is booming.

Wine Trade Nerve Centre

"Hong Kong has set itself up as the nerve centre of the international wine trade in Asia," Mr Beynat said. "China, which has become the leading Asian market in both value and volume, is a priority target."

Mr Beynat announced the findings during his latest visit to Hong Kong last month. "We visit Hong Kong at least twice a year and, of course, more time when we are preparing Vinexpo Asia-Pacific," which takes place every two years in Hong Kong, alternating with Bordeaux, France. "It is very important for us to be here," he said.

Regarded as the widest, most accurate and most detailed body of information on the world's alcoholic beverage market, the IWSR database shows that the mainland became the world's fifth-largest wine consumer in 2010, and has the fastest take-up rate.

With annual per-capita wine consumption of 5.3 litres, Hong Kong has seen its wine consumption double between 2007 and 2011, topping three million nine-litre cases.

 "On average, Hongkongers drink twice as much wine as the Japanese, with 2.7 litres per person per year, and the Singaporeans, whose annual per capita consumption is 2.3 litres. Hongkongers predominantly prefer red wine, which accounts for 82.5 per cent of all wine consumed in the city. But they are also open to sparkling wines, which represent 3.6 per cent of total consumption. Hongkongers drink twice the Asian average of sparkling wine."