18 Dec 2017
HKTDC Export Index 4Q17: Moderating but Remains Favourable
- The HKTDC Export Index, a measure of the confidence levels of Hong Kong’s export-oriented businesses, dropped to 44.6 for 4Q17, falling from 46.2 in the previous quarter. This indicates a slightly declined level of optimism with regard to Hong Kong’s likely export performance over the near term.
- Despite this, the underlying positive export trend recorded for most of 2017 looks set to continue into 2018, with 76% of the exporters surveyed indicating that they expected their level of sales to increase or to remain unchanged over the coming year.
- Overall, the export performance of many of the key industries – with the exception of the toy sector – may show a less robust growth than had been seen in the previous quarter. While machinery remained the best performing sector at 47.8, this was notably down on its 3Q17 performance of 53.1. Confidence also faltered in the jewellery sector, with its index falling from 39.5 in the previous quarter to 36.8 this time round.
- With regard to the performance of individual export markets, confidence in the US was restored – rising from 47.0 to 49.3 – while the expectation of the other major export markets, including Japan (48.5), the Chinese mainland (48.2) and the EU (47.5), have reached a lower level.
- The Trade Value Index, however, remained in expansionary territory, recording a 14-quarter high of 52.1 for 4Q17. As a consequence unit prices are expected to rise across the key industries.
- In terms of labour costs, the situation on the Chinese mainland showed signs of easing. In total, 49% of respondents indicated they had experienced higher labour costs in 4Q17, down from 54% in both 3Q17 and 2Q17. Only 3% of respondents, however, reported any decrease in labour costs, a fall from the 6% who reported a similar experience in 3Q17 and 2Q17.
Following a decline in confidence experienced by many Hong Kong exporters in the previous quarter, the HKTDC Export Index dropped marginally, falling from 46.2 in 3Q17 to 44.6 in 4Q17. This reduced level of optimism indicates a conservative sentiment towards Hong Kong’s short-term export performance.
For 2017 as a whole, the confidence level of Hong Kong exporters has improved substantially compared to the previous year. Overall, the average 2017 HKTDC Export Index level was 47, notably higher than the 2016 average of 36.8. It should also be noted that confidence levels reached a 16-quarter high of 50.1 for 2Q17. Given the expectations of many of the exporters surveyed, it seems wholly likely that the favourable export growth will continue in 2018.
Toys, although not recording the highest level among the key industries, was the only sector that demonstrated improved sentiment, with its reading of 43.3 up from the 41.2 reported for 3Q17. In terms of the machinery sector, its confidence level fell back into contractionary territory with a reading of 47.8, down from its 53.1 peak in 3Q17. Despite this, it remained the best performing sector, followed by electronics (44.8), toys (43.3), timepieces (41.2) and clothing (40.7). In the case of the jewellery sector, confidence again took a tumble, falling from 39.5 in 3Q17, to 36.8 in 4Q17, the lowest reading recorded for any of the key industries as in the last two quarters.
Turning to the export markets, many respondents appeared to have their confidence restored in in the US, with its reading of 49.3 – a touch below the watershed level of 50 – up from 47 in 3Q17. Having notably struggled over the last two quarters, the US has resumed its status as the most promising of all the major markets as in the beginning of the year. By contrast, confidence in the other major export markets has dipped to a lower level, with Japan falling from 48.6 to 48.5, the Chinese mainland from 51.5 to 48.2 and the EU from 49.5 to 47.5.
For 4Q17, the Offshore Trade Index edged down to 47.5, falling from its 12-quarter high of 48.2 in 3Q17. In comparison to the previous quarter, the overall offshore trade performance (i.e. shipments not passing through Hong Kong, but handled by Hong Kong exporters) may be slightly less impressive. Given that the Offshore Trade Index experienced a smaller drop than the overall HKTDC Export Index, this indicates that Hong Kong’s offshore trade may continue to outperform Hong Kong’s total exports over the near term.
Unit prices are expected to pick up across the key industries, with the Trade Value Index remaining in expansionary territory with a 52.1 reading for 4Q17, a 14-quarter high. Overall, an expectation of higher unit prices was indicated in the toys (54.2), electronics (52.5), jewellery (51.5) and machinery (51.2) sectors over the near term, with only timepieces (49.5) and clothing (45.6) left in contractionary territory.
The Procurement Index edged down slightly in 4Q17, falling from 49 in 3Q17 to 46.2. This indicates the possibility of a fall in input costs and/or the likelihood of sluggish overall demand. Procurement sentiment in number of industries, including machinery (49.4), toys (47.2) and electronics (46.3), has returned to contractionary territory, following the expansion witnessed in the previous quarter. Bearing in mind the strong rebound of procurement demand in a number of the less optimistic sectors, including timepieces (45.1), clothing (43.1) and jewellery (41.2), the overall procurement sentiment was less polarised than in the previous quarter.
In the case of the Employment Index, this continued to drop, falling to 46 in 4Q17 from 47.6 in 3Q17 and 48.6 in 2Q17, with hiring confidence across the key industries notably mixed. Despite the relatively pessimistic expectations of jewellery exports over the near term, as highlighted by the Export Index, the hiring sentiment in this sector showed a robust recovery, rising from 42 in 3Q17 to 52 in 4Q17 – a 14-quarter high – placing it in the expansionary zone. A number of sectors, however, remained in contractionary territory, including machinery (48.8), timepieces (48), clothing (46.1), electronics (45.9) and toys (44.4), an indication that employment levels may fall in these industries over the short term.