Hong Kong economic growth slows down in Q3 2018, domestic demand likely to be under pressure

The Hong Kong economy expanded strongly in the third quarter. On a year-on-year basis, the economy grew 2.9 percent in the September quarter, showed official data. This is the eighth straight quarter of above-trend growth; however, it eased from the second quarter print of 3.5 percent.

External demand continued to see visible growth for the quarter as a whole along with further expansion of the global economy. Domestic demand stayed strong. Labor market conditions continued to be favourable, while consumer price inflation accelerated a bit.

On a quarterly basis, the real GDP grew 0.1 percent, a slowdown by 0.2 percent in the preceding quarter.

On a year-on-year basis, total exports of goods sustained further marked growth of 5 percent in real terms for the third quarter as a whole, with most major markets indicating growth of varying degrees. Yet, the rate of export growth slowed in September, as the effect of the US-Mainland trade conflicts started to surface.

Domestic demand remained largely resilient in the September quarter. Private consumption expenditure, albeit less buoyant than in the previous quarters, expanding markedly by 5.2 percent year-on-year in real terms, buttressed by favourable job and income conditions. In all investment expenditure picked up considerably to grow by 8.2 percent, as machinery and equipment acquisition rose sharply and building and construction activity registered a narrower fall.

The labor market continued to be tight in the third quarter. The seasonally adjusted jobless rate remained the same at a 20-year low of 2.8 percent, while the underemployment rate rose to a still-low level of 1.2 percent. Total employment sustained visible growth on a year-on-year basis. Wages and earnings also saw strong and widespread gains in real terms.

Looking ahead, the economic outlook of Hong Kong is subject to increasing downside risks. Domestic demand might also be subject to more pressure from increasing external headwinds. Consumer confidence, while still being underpinned by the favourable job and income conditions, could increasingly by impacted by the external uncertainties and softer asset markets.