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HK Economy Cools in Q2

HK Economy Cools in Q2HK Economy Cools in Q2

Hong Kong’s economic growth slowed in the second quarter after a strong start to the year and is expected to cool further as escalating trade tensions between Beijing and Washington and higher interest rates start to bite.

The city’s economy grew 3.5% in the second quarter from a year earlier, down from a revised 4.6% growth rate in January-March, which was the strongest quarterly performance in nearly seven years, Reuters reported.

“Local investor sentiment might feel the pinch should the US-mainland trade conflicts intensify further,” the government said in a statement. “Indeed, various surveys suggested that local business sentiment had turned slightly more cautious most recently.”

The second-quarter pace lagged an average forecast from four economists of 4.2%. However, the government kept its forecast for full-year 2018 growth at 3-4%.

The economy contracted 0.2% in the second quarter on a seasonally-adjusted basis—the worst reading in four years—compared with revised 2.1% growth in the first quarter.

“With such a big discrepancy between the forecast and actual number, it is a wake-up call,” said Linus Yip, chief strategist at First Shanghai Securities. “People will take a more cautious approach and that may underpin stock market sentiment.”

The financial hub’s trade-reliant economy is vulnerable to the growing trade row between the United States and China, Hong Kong’s largest trade partner. Trade and logistics industries are particularly at risk as the two sides ratchet up tit-for-tat tariffs.

The Hong Kong government said in July that HK$130 billion ($16.56 billion) worth of trade could be affected by the dispute, accounting for 3.5% of the Chinese-ruled city’s total exports.

While uncertainty over trade is clouding the outlook, Hong Kong is still bolstered by strong consumer spending amid a tight labor market and solid growth in tourism, in particular from mainland China.

 

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