Hong Kong Economics - Summer Outlook: Concerns Still Outweigh Positives

Lowering growth forecasts another notch:Reflecting weak incoming data and our expectations forslower growth in China, we are trimming our growthforecast for 2014 by 20bps to 2.5%. Our new forecastremains significantly below consensus expectations of3.4% and the government’s estimate of 3-4%.

    Concerns outweigh the positives: Our globaleconomics team expects global growth to reaccelerateback to the 3.7%Y average pace recorded in the lastthree quarters of 2013, which would lend some supportto external demand and, hence, overall growth.

    However, we expect this to be overshadowed by anumber of uncertainties, such as slower growth inChina and domestic concerns about subdued assetmarkets and recent policy uncertainty around the retailsales and tourism sectors.

    External environment holds the key to macrooutlook: The key difference between our views andconsensus seems to lie in the external environmentand the benefits it will bring to Hong Kong. Wetherefore believe that any unexpected movements inHong Kong’s exports growth will prove to be the keyfactor in determining the near-term growth outlook.

    Risk to watch for: Domestically, we will be closelywatching for potential signs of formation of a viciousloop that involves slower domestic demand growth, abuildup of disinflationary pressures, higher real interestrates and debt servicing burden, and downwardpressures on asset prices. If this negative loop were toform, it could bring further downside risks to HongKong’s growth outlook.