Hong Kong: Q1 GDP beat expectations by a wide margin – Standard Chartered

Hong Kong’s economy has started the year much stronger than expected, up 4.7% y/y in Q1 versus consensus of 3.4% as this is the highest level since Q2-2011, and is the first acceleration in a year, from a solid 3.4% in Q4-2017, despite a less favourable base effect, explains Kelvin Lau, Senior Economist at Standard Chartered.

Key Quotes

“The corresponding 2.2% q/q growth (consensus was 0.8%) is also the fastest in seven years.”

“Private consumption expenditure (PCE) continued its multi-year strong run, up 8.6% y/y and adding a substantial 5.7ppt to headline growth (both also the most since 2011). Both consumer durables (+25.7% y/y) and non-durables (+13.9% y/y) contributed to the surprise, while spending on services accelerated for a seventh straight quarter to 6.0% y/y; all attributable to a tight labour market (the unemployment rate is at a 20-year-low of 2.9%) and resilient asset prices.”

“We revise our 2018 and 2019 GDP forecasts to 3.8% and 3.4% (from 3.2% and 3.0%), mostly to reflect the stronger-than-expected start to year, but also the surprisingly persistent strength in domestic consumption. That said, we believe the underlying trend is still for growth to moderate from here, mainly due to (1) a high base; (2) higher interest rates; and (3) rising US-China trade friction.”