Hong Kong's August retail sales data are due this Friday

Hong Kong's August retail sales data are due this Friday. Retail sales values and volumes are expected to contract 8.5% YoY and 4.5% respectively, versus the 2.8% contraction and 1.9% growth in July respectively. The outlook for the retail sector is bleak. 

Firstly, the slowdown in tourist arrivals is worsening. In 2Q15, Chinese visitors travelling under the individual visitor scheme fell 7.5% YoY, compared to 4.1% and 14.1% growth in 1Q15 and full-year 2014 respectively. The most worrying thing is the semi-permanent nature of the decline. Because the drop has been protracted, it gives shoppers time to develop new habits - whether it's shopping in Japan or Europe, shopping online, or in mainland duty free stores. Non-Chinese tourist arrivals also slowed down notably due to other Asian currencies' steep depreciation. 

Secondly, local consumer confidence is waning after the mainland's stock bubble burst, and a strong HKD is encouraging locals to spend overseas. This is set to continue as global macroeconomic fundamentals dictate a strong USD (HKD) environment going into 2016. Finally, Hong Kong's retail sales growth is positively correlated with China's GDP growth, which is also likely to slow further.