Hong Kong's Economy Likely Slowed Last Quarter Amid Trade Gloom

(Bloomberg) -- Hong Kong's economic growth is expected to have continued slowing last quarter, as the U.S.-China trade dispute and the deceleration on the mainland worsen the outlook for the trade-dependent economy.

Gross domestic product grew 3.3 percent in the third quarter from a year ago, according to a Bloomberg survey ahead of data due at 4:30 p.m. Hong Kong time on Friday, a second straight quarterly deceleration. Retail sales growth was the lowest in September in more than a year, with a slump in luxury spending a sign of worsening sentiment from Chinese tourists.

The combination of domestic and international uncertainty points to a more modest outlook for the economy, after posting growth rates in excess of 3 percent for the past seven quarters.

While the government has kept its forecast of 3 percent to 4 percent growth this year so far, there will be a "significant impact" from the U.S.-China trade conflict on the economy next year, a senior official told lawmakers last month.

Citing the trade war, Standard Chartered Plc, United Overseas Bank Ltd, and ING Bank NV have downgraded their forecasts for Hong Kong's full-year growth.

"Hong Kong is a small, open economy that is heavily reliant on the mainland economy. When the mainland isn't doing very well, we won't do well either," said Iris Pang, Greater China economist with ING in Hong Kong.

Consumption Weakens

Reduced consumption is the main factor determining the outlook for the third quarter, according to Pang. A high down payment ratio for property buyers means this takes more of their disposable income, leaving less for consumption of goods and services, she said.

Retail sales in September slowed the most since June 2017, and spending on watches, jewellery and clocks was the lowest since November last year.

Retail sales doesn't include services, which make up more than half of consumption expenditure.

Cooling Property Market

The property market has shown signs of a downturn since September, when existing home prices started ticking down, mortgage applications plummeted, and luxury home transactions dropped to the lowest in data back to 2005.

That decline could lead to reduced demand for real-estate services and layoffs in related jobs but the effect was more likely to be seen in the current quarter, according to Pang, who is forecasting growth to slow again to 2.8 percent in the current three-month period.

The trade dispute between China and the U.S. is bound to damage Hong Kong's economy, as those nations are its top two trading partners and it's a key connector for business between the two.

September export growth slowed to 4.5 percent from double-digit growth in the previous two months and the Hong Kong Trade Development Council halved its forecast for full-year export growth to 3 percent after its export sentiment index plunged.

"The impacts on Hong Kong's exports and business sentiment have already begun to surface, and could turn more apparent in the period ahead," a spokesman at the office of the government economist wrote in an emailed statement. "If the trade conflicts are to escalate further, Hong Kong would face a less favorable economic environment."

--With assistance from Eric Lam.

To contact the reporter on this story: Natalie Lung in Hong Kong at flung6@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger

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