The Government released today (May 11) the First Quarter Economic Report 2018, together with the preliminary figures on Gross Domestic Product (GDP) for the first quarter of 2018.
The Government Economist, Mr Andrew Au, described the economic situation in the first quarter of 2018 and provided the latest GDP and price forecasts for 2018.
Main points
* The Hong Kong economy turned in robust growth of 4.7% over a year earlier in the first quarter of 2018, sustaining the full-fledged upturn in 2017. External demand picked up as the global economy maintained broad-based momentum. Domestic demand also strengthened, buttressed by favourable labour market conditions and positive business sentiment. On a seasonally adjusted quarter-to-quarter comparison, real GDP grew notably by 2.2% in the first quarter.
* Total exports of goods grew strongly by 5.2% year-on-year in real terms in the first quarter, as the upswing in global investment and trade translated into booming production and trading activities in Asia. Exports of services likewise accelerated to show broad-based growth of 7.5% year-on-year in real terms, bolstered by a strong recovery in inbound tourism, active global financial market activities and buoyant regional trade flows.
* Domestic demand continued to strengthen. Private consumption expenditure grew notably by 8.6% year-on-year in real terms in the first quarter, reflecting optimistic consumer sentiment on the back of favourable job and income as well as asset market conditions. Overall investment expenditure registered further real year-on-year growth of 3.8%, amid notable growth in machinery and equipment acquisition as well as modest expansion in building and construction activity.
* The labour market remained tight. The seasonally adjusted unemployment rate stayed at a 20-year low of 2.9% in the first quarter, while the underemployment rate showed a further decline. Total employment continued to record sturdy growth. In tandem, wages and earnings registered further real improvements, with more notable increases in the lower-skilled segments of the labour market.
* The local stock market was bullish on entering 2018, but experienced corrections in the latter part of the first quarter amid a firmer outlook for gradual US interest rate hikes and intensified concerns over the global trading environment. Separately, the residential property market remained buoyant, with flat prices rising further amid active trading.
* Looking ahead, the broad-based momentum in the global economy is likely to continue in 2018. The Mainland economy should stay on a robust growth track in 2018 following the strong performance in the first quarter. The US economy is also expected to see faster growth this year as the stimulating effect of the expansionary fiscal policy kicks in. In the euro area and Japan, recent indicators point to further moderate economic growth. The strengthening global demand should be conducive to manufacturing and trading activities in Asia, to the benefit of Hong Kong’s exports. Further improvement in inbound tourism should also render additional support to Hong Kong’s exports of services. However, external uncertainties have increased of late. Of particular concern are the trade tensions between the US and its trading partners, notably the Mainland, for their potential adverse impacts on global trade flows and investor sentiment. Separately, the evolving global financial conditions amid the expected US rate hikes also warrant close attention.
* Domestic demand should continue to stay resilient. Local consumption sentiment is likely to be well underpinned by favourable job and income conditions. The latest Quarterly Business Tendency Survey indicated that large enterprises have turned more upbeat about their near-term business outlook. Ongoing infrastructure works and the measures in the 2018-19 Budget (the Budget) should provide further growth impetus to the economy.
* The actual growth outturn of the Hong Kong economy in the first quarter was stronger than expected. Nonetheless, considering the increased uncertainties in the external environment, particularly on the trade and financial fronts, the forecast real GDP growth of 3-4% for 2018, as announced in the Budget, is maintained in the current round of review. The Government will continue to closely monitor developments on the external and local fronts.
* Inflation pressures have generally been moderate. Underlying consumer price inflation went up to 2.4% in the first quarter, due to favourable global and local economic situations as well as some temporary factors. Looking ahead, the robust economic conditions, if continued, are likely to exert some upward pressures on inflation over the course of 2018, though the inflation rate for the year as a whole should remain moderate. As the outturn in inflation so far has largely been in line with expectations, the forecast rates of underlying and headline consumer price inflation for 2018 as a whole put out in the Budget, at 2.5% and 2.2% respectively, are maintained in the current round of review.
Details
GDP
According to the preliminary data on the GDP released today by the Census and Statistics Department, GDP grew notably by 4.7% in real terms in the first quarter of 2018 over a year earlier, up from 3.4% in the preceding quarter (same as the earlier estimate), marking the sixth consecutive quarter of growth above the trend growth rate of 2.7% per annum in the past 10 years. On a seasonally adjusted quarter-to-quarter comparison, real GDP surged by 2.2% in the first quarter, up from 0.8% in the preceding quarter (same as the earlier estimate) (Chart).
The latest figures on GDP and its major expenditure components up to the first quarter of 2018 are presented in Table 1. Developments in different segments of the economy in the first quarter of 2018 are described below.
External trade
Total exports of goods picked up to show notable year-on-year growth of 5.2% in real terms in the first quarter, from that of 3.4% in the preceding quarter. This was broadly similar to the growth of 5.9% for 2017 as a whole. Analysed by major market, with reference to external merchandise trade statistics, exports to Asian markets as a whole continued to show robust growth, on the back of buoyant manufacturing activities in the region that generated solid demand for exports of raw materials and semi-manufactures. In particular, exports to the Mainland saw a visible acceleration in growth. Also, exports to the US and the EU increased sizeably, thanks to sustained improvement in final demand in these economies. On a seasonally adjusted quarter-to-quarter basis, total exports of goods grew by 3.1% in real terms in the first quarter.
Exports of services likewise displayed strength in the first quarter, with broad-based growth of 7.5% in real terms over a year earlier, up from 3.9% growth in the preceding quarter and 3.2% growth for 2017 as a whole. Exports of travel services strengthened to show double-digit growth, reflecting the strong recovery of inbound tourism. Notwithstanding the somewhat more volatile financial markets in the first quarter, the solid momentum in the global economy underpinned active financial market activities, resulting in sizeable growth in exports of financial services. Exports of transport services expanded solidly amid vibrant regional trade flows, while exports of business and other services grew modestly. On a seasonally adjusted quarter-to-quarter basis, exports of services continued to rise, by 4.8% in real terms in the first quarter.
Domestic sector
The domestic sector continued to strengthen in the first quarter. Private consumption expenditure grew markedly by 8.6% in real terms over a year earlier. Consumer sentiment was firmly supported by favourable job and income conditions as well as the wealth effect resulting from the buoyant asset markets. On a seasonally adjusted quarter-to-quarter comparison, private consumption expenditure increased by 3.1% in real terms in the first quarter. Government consumption expenditure continued to grow steadily by 3.9% year-on-year in the first quarter, following 3.2% growth in the preceding quarter.
Overall investment spending in terms of gross domestic fixed capital formation increased further by 3.8% year-on-year in real terms in the first quarter, following growth of 3.5% in 2017. Thanks to the sustained upturn in the global economy, local business sentiment was broadly positive in early 2018. This, together with the sizeable increase in purchases by the public sector, rendered a notable year-on-year increase in overall machinery and equipment acquisition. Overall building and construction activity saw modest growth in the first quarter, backed by the expansion in public building and construction works. Costs of ownership transfer showed a double-digit increase as property market transactions went up visibly over a year earlier.
The labour sector
The labour market remained tight, with the seasonally adjusted unemployment rate staying at a 20-year low of 2.9% in the first quarter of 2018. The underemployment rate edged down to 1.0%, the lowest level in over 20 years. Total employment continued to grow sturdily over a year earlier. In tandem, wages and earnings registered further year-on-year improvements in real terms, with more notable increases in the lower-skilled segments of the labour market.
The asset markets
The local stock market was bullish on entering 2018, but experienced corrections in the latter part of the first quarter amid a firmer outlook for gradual US interest rate hikes and intensified concerns over the global trading environment. The Hang Seng Index closed the first quarter at 30093, up by only 0.6% from end-2017 and down by 9.2% from its peak in late January. On May 10, the Hang Seng Index closed at 30809.
The residential property market remained buoyant in the first quarter of 2018. While trading volume was 8% lower than the fervent level in the preceding quarter, it was 14% higher than a year ago. Residential property prices increased by 4% between December 2017 and March 2018. Overall flat prices in March 2018 exceeded the 1997 peak by 113%, and the housing affordability ratio worsened to around 71% in the first quarter. Flat rentals rose by 1% during the first quarter. In contrast, office rentals stayed virtually flat over the same period, while those for retail premises fell by 1%.
Prices
Consumer price inflation was moderate in the first quarter, though going up somewhat on the back of strong economic growth as well as some temporary factors. Locally, labour cost pressure was held in check on a unit cost basis, as rises in wages and earnings were largely matched with concurrent growth in labour productivity. Commercial rental cost pressure was contained in general, while the increase in fresh-letting residential rentals over the past year or so continued to feed through gradually to consumer price inflation. External price pressures also remained moderate, only edging up slightly due to the weaker US dollar over the past year and mildly higher inflation in some major import sources amid the global economic upturn. Overall, netting out the effects of the Government’s one-off relief measures, underlying consumer price inflation was 2.4% in the first quarter, up from 1.6% in the preceding quarter. Headline consumer price inflation rose to 2.4% from 1.6% in parallel.
Latest GDP and price forecasts for 2018
Looking ahead, the broad-based momentum in the global economy is likely to continue in 2018. The Mainland economy should stay on a robust growth track in 2018 following the strong performance in the first quarter. The US economy is also expected to see faster growth this year as the stimulating effect of the expansionary fiscal policy kicks in. In the euro area and Japan, recent indicators point to further moderate economic growth. The strengthening global demand should be conducive to manufacturing and trading activities in Asia, to the benefit of Hong Kong’s exports. Further improvement in inbound tourism should also render additional support to Hong Kong’s exports of services. However, external uncertainties have increased of late. Of particular concern are the trade tensions between the US and its trading partners, notably the Mainland, for their potential adverse impacts on global trade flows and investor sentiment. Separately, the evolving global financial conditions amid the expected US rate hikes also warrant close attention.
Domestic demand should continue to stay resilient. Local consumption sentiment is likely to be well underpinned by favourable job and income conditions. The latest Quarterly Business Tendency Survey indicated that large enterprises have turned more upbeat about their near-term business outlook. Ongoing infrastructure works and the measures in the Budget should provide further growth impetus to the economy.
The actual growth outturn of the Hong Kong economy in the first quarter was stronger than expected. Nonetheless, considering the increased uncertainties in the external environment, particularly on the trade and financial fronts, the forecast real GDP growth of 3-4% for 2018, as announced in the Budget, is maintained in the current round of review (Table 2). The Government will continue to closely monitor developments on the external and local fronts. For reference, the latest forecasts by private sector analysts mostly range from 2.8-3.5%, averaging around 3.1%.
On the inflation outlook, the robust economic conditions, if continued, are likely to exert some upward pressures on inflation over the course of 2018, though the inflation rate for the year as a whole should remain moderate. As the outturn in inflation so far has largely been in line with expectations, the forecast rates of underlying and headline consumer price inflation for 2018 as a whole put out in the Budget, at 2.5% and 2.2% respectively, are maintained in the current round of review (Table 2).
The First Quarter Economic Report 2018 is now available for online download, free of charge at www.hkeconomy.gov.hk/en/reports/index.htm. The Report of the Gross Domestic Product, First Quarter 2018, which contains the GDP figures up to the first quarter of 2018, is also available for online download, free of charge at the homepage of the Census and Statistics Department, www.censtatd.gov.hk. read more
