The news that a few of my favourite restaurants will be going out of business soon made me disheartened. Afterwards, when I took a stroll in some key commercial districts on the Island and saw sparse customer traffic in popular stores despite the deep discounts on offer, our conservative forecast about the Hong Kong economy seems to be turning out to be true.
Cautiousness
As noted in our Economic Update on 15 December, we had been cautious not to be overly optimistic about the economic outlook, despite some early signs of stabilisation. While business sentiment might have turned slightly more positive as reflected in the Business Tendency Survey results in the fourth quarter of 2016, such sentiment has deteriorated somewhat in the first quarter of 2017 (see Chart 1). Downbeat sentiment was particularly felt by businesses in tourism-related industries, as a higher percentage of respondents in the retail, accommodation and food services sectors expected a worse business situation ahead. At the same time, businesses involved in import, export trade and wholesale activities continued to display moderating negative sentiment. Retail Malaise
At a first glance, with incoming visitors having picked up noticeably in December, it should have given a boost to businesses in the relevant sectors, but we maintain our cautious stance at this juncture.
Total incoming visitors grew by 5.4% YoY, the highest growth rate since February 2015, with the inflow of visitors from the Mainland being the biggest contributor (+6.1% YoY). However, as the number of visitors remained 5.8% lower than that for December 2014, the outlook of the tourism-related sectors remains challenging.
In addition, the warm weather this winter is taking a toll on retailers who have stocked up on winter clothing. According to the Hong Kong Observatory, the mean temperature for December was 19.6 degrees Celsius, 1.7 degrees higher than normal, making it the third warmest December on record.1 The unusually warm weather is rubbing salt in the wound of retail businesses who have suffered from lacklustre business flows throughout 2016. Therefore, pressure on retailers should remain at high levels.
Renewed Concerns on Trade
Hong Kong's total exports and imports of goods recorded 10.1% and 8.7% growth respectively in December 2016 (see Chart 3), which is in line with our view that the favourable base effect would help lift the merchandise trade performance in the near term. Particularly, the stabilisation of trade was supported by our major export destinations (the Mainland and the U.S.), which maintained their growth momentum toward the end of 2016. Notwithstanding the above, the outlook for international trade could deteriorate significantly with deepening uncertainties about the trade policy direction of the U.S.
Conclusion
While the stable employment market situation should continue to contribute positively to our economy (e.g. the unemployment rate stood at 3.3% in the fourth quarter of 2016), the cautious business sentiment, the warm winter, and the potential rise of protectionism in the U.S. are factors keeping our optimism at bay.
Kung Hey Fat Choy, and we wish you a prosperous Year of the Rooster!
1Information Services Department
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