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Thursday, July 21, 2016, 17:34

Hang Seng Bank cuts growth forecast for HK

By Zhou Mo

HONG KONG - Hang Seng Bank lowered its forecast for Hong Kong economic growth in 2016 from 1.5 percent to 1.3 percent on Thursday, as the UK’s vote to leave of the European Union (EU) casts a shadow on the outlook for the SAR’s trade performance as well as investment and consumption confidence of businesses and households.

Despite limited direct trade between Hong Kong and the UK, the city could be adversely affected by the UK’s decision to leave the EU if the global economy slows as a result, according to Hang Seng’s report Downside Risks to Hong Kong Economy.

Businesses and households may also become more cautious about investment and consumption following Brexit, the report says.

Although Hong Kong’s retail performance showed an improvement, with year-on-year decline narrowing from 11.2 percent in the first quarter to 8.4 percent in April-May, the “underlying picture remains weak”, the report says.

Retail sales of consumer durables plummeted by almost 21 percent in May, representing the biggest fall since February, and the number of mainland visitors dropped by 8.3 percent year-on-year in the same month, a larger decline than April’s 4 percent.

These factors reflect that persistent global economic uncertainty and the financial market are affecting household spending activity, the report says.

According to the report, the recent positive performance of Hong Kong trade flows, in which export showed a slower year-on-year decline of 0.1 percent in May, compared with a 2.3 percent fall in April, is more attributed to higher commodity prices than to stronger global economic growth, citing moderate growth in the US and the Eurozone.

"Without a pickup in growth in these economies, which are the leading markets for Asian exports, Hong Kong’s trade growth is unlikely to be sustainable,” the report says.

"While upcoming economic data for the second half of the year could be volatile and even surprise on the upside due to a low-base effect that could result from the slowdown in activity in the second half of last year, the key factor in assessing the economic outlook is the underlying trend, which is currently indicating further slowdown.”

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