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HKTDC Export Index 3Q17: Exporter Confidence Pulled Back from the Peak

  • Exporters have become slightly conservative with regard to Hong Kong’s likely export performance over the near term, with the HKTDC Export Index decreasing from its 16-quarter high of 50.1 in 2Q17 to 46.2 in 3Q17.
  • Overall, the performance of the key industries was mixed. While machinery continued on the upward trend it has shown over the last two quarters, overtaking timepieces to become the best performing sector, overall export performance was dragged down by clothing, toys, jewellery and timepieces.
  • In terms of expected export performance by market, a marginal decline in confidence has swept across-the-board. The Chinese mainland, however, was still viewed as the most promising market, while the US was least encouraging.
  • For 3Q17, the Trade Value Index decreased slightly to 50.4, staying barely in expansionary territory, while procurement sentiment proved more robust, with the Procurement Index maintaining the 49.0 level recorded in 2Q17.
  • Meanwhile, the level of concern over Brexit likely impact on Hong Kong’s export performance has continued to fall, with 91% of respondents reporting no impact to date, against 86% expressing the same sentiment in 1Q17 and 83% in 3Q16. In total, only 8% of respondents anticipated a negative impact, a fall from 13% in 1Q17 and 17% in 3Q16.
  • Expectations of a negative impact on Hong Kong’s export performance as a consequence of heightened US protectionism on the part of the Trump administration have also declined, with 81% of respondents anticipating no impact (71% in 1Q17) and only 18% fearing a negative outcome (27% in 1Q17).
  • Among those expecting to be affected by developments in the UK and/or the US, the majority planned to respond by actively seeking out new markets.
  • On the supply side, labour cost pressure was seen as remaining high on the Chinese mainland. In total, 54% of respondents experienced higher labour costs during 3Q17, compared with 54% in 2Q17 and 47% in 1Q17.

Overall, the HKTDC Export Index dropped to 46.2 in 3Q17, marginally down from its 16-quarter high of 50.1 in 2Q17. This indicates that the confidence level of Hong Kong exporters has returned to negative territory, with exporters taking a conservative view of their short-term sales prospects.

Chart: HKTDC Export Index
Chart: HKTDC Export Index

With the key industries turning in a mixed performance, machinery continued the upward trend it has demonstrated over the last two quarters, with its reading of 53.1 – the highest overall – seeing it overtakes timepieces to become the best performing sector. Following machinery, electronics again performed marginally better than average (46.3), with its decrease in reading in line with the overall decline of the index. The overall export performance for the quarter, however, was dragged down by timepieces, clothing, toys and jewellery. Among these sectors, only clothing demonstrated any improved sentiment (42.7). In the case of timepieces (43.6) and toys (41.2), a considerable decline in confidence took the two sectors from positive to negative. The most pessimistic sector remained jewellery, with the lowest overall reading of 39.5. Despite this, it would seem that the sector’s loss of confidence has stabilised.

Table: HKTDC Export Index
Table: HKTDC Export Index

With regard to export performance by market, a marginal decline in confidence has swept across-the-board. The Chinese mainland, Hong Kong’s largest trading partner, continued to be seen as the most promising market overall. Unlike every other market, the Chinese mainland continued to be viewed as expansionary with a reading of 51.5. In terms of contractionary territory, the EU remained a little below the watershed of 50 (49.5), followed by Japan (48.6). With the lowest overall rating, exporters were most pessimistic with regards to the US, a territory that was viewed in positive terms at the beginning of the year. Confidence in the country, however, has ebbed over the course of the year, with the index dwindling down from its 1Q17 peak of 50.3 to 48.1 in 2Q17, then down again to 47.0 in the most recent quarter.

Table: HKTDC Export Index by Market
Table: HKTDC Export Index by Market

The Offshore Trade Index rose to 48.2 in 3Q17, increasing from 41.5 in 2Q17. This indicated a further improvement in export confidence with regard to offshore trade performance (i.e. shipments not passing through Hong Kong, but handled by Hong Kong exporters). With a higher reading than the overall HKTDC Export Index, Hong Kong’s offshore trade is expected to outperform Hong Kong’s total exports in the near term.

Chart: Offshore Trade Index
Chart: Offshore Trade Index

In the case of the Trade Value Index, this showed a marginal decrease to 50.4 in 3Q17, compared to 51.1 in 2Q17, barely remaining in expansionary territory. Overall, higher unit prices were anticipated in machinery (55.0) and electronics (51.0) over the near term, while lower unit prices were expected in the toys (46.8), timepieces (45.6), jewellery (45.5) and clothing (40.0).

Table: Trade Value Index
Table: Trade Value Index

As with 2Q17, the Procurement Index remained at 49.0 for 3Q17. In line with the most recent procurement figures, the key industries can be divided into two distinct groups, with toys (52.1), machinery (51.3) and electronics (50.0) demonstrating a positive procurement sentiment, while clothing (36.4), timepieces (36.3) and jewellery (28.0) stayed within the contractionary level, indicating the possibility of a fall in input costs and/or sluggish future demand.

Table: Procurement Index
Table: Procurement Index

The Employment Index inched down slightly, falling to 47.6 in 3Q17 from 48.6 in 2Q17. Hiring confidence remained strong in machinery, which recorded the highest reading of 51.9. With the exception of machinery, all other sectors remained pessimistic, signalling the likelihood of labour contraction over the near term. Employment prospects in clothing were deemed the bleakest of all the major industries, with its index falling for the second time this year, dropping from its high point of 43.1 in 1Q17 to 42.2 in 2Q17 and 39.8 in 3Q17.

Table: Employment Index
Table: Employment Index

 

Content provided by Picture: Doris Fung
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