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Hong Kong export growth to moderate in second half

Hong Kong will be able to sustain its export growth in the second half of 2006 but at a more moderate pace, according to the Trade Development Council (TDC), which released its mid-term trade forecast today (August 1).

TDC expects HK's total merchandise exports to rise by 8% in value for 2006 as a whole, against 9% forecast previously.

In the Council's forecast report, Chief Economist Edward Leung anticipates that the global economy will slow as a result of persistently high oil prices, looming inflation pressures and associated monetary uncertainties.

Although Hong Kong's exports increased by 9% in the first half, they have been moderating throughout the year.

TDC expects exports of electronics, which account for 48% of Hong Kong's total exports, to be affected more by a moderation in global export growth than by the EU's mid-2006 green directives (RoHS).

European buyers have responded with caution to these new directives. While some brought orders forward, to avoid teething problems, others postponed orders until all potential hitches are resolved.

On the plus side, uncertainties brought on by the implementation of these directives are starting to diminish, which should help to restore Hong Kong's electronics exports to their usual level.

For Hong Kong's clothing products, the report notes that the export pattern has changed since the beginning of the year. They grew only by a modest 4% in the first half. There was a surge of 71% in domestic exports, while re-exports slipped by 11%. This is because local suppliers are shifting their production back to Hong Kong in view of the restoration of textile quotas against Chinese exports by the US and the EU.

The RMB's further appreciation remains a potential risk for Hong Kong exporters, says the report. It has appreciated by a total of 3.5% against the US dollar since the exchange rate reform began in July 05.

According to Mr. Leung, a stronger RMB has so far not had any substantial impact on the costs of Hong Kong companies producing on the mainland because average local content currently stands at only about 30%.

However, he warned that any faster, sharper appreciation would probably blunt the competitiveness of Hong Kong exports, especially labour-intensive items.

PRD labour wages have increased by 15% to 30% since the beginning of this year, following a 20% rise in 2005.

"Over the medium term, higher wages and labour shortages will likely remain irreversible, and these issues should be taken seriously by Hong Kong manufacturers," added Mr. Leung.

The report also expresses concern over persistently high oil prices, which could place Hong Kong exporters in a double bind if rising labour costs combine with higher crude oil prices.

On markets, the US is expected to remain robust in the second half of 2006 and in 2007 if inflation expectations are contained, and interest rate rises peak.

The market outlook for the EU and Japan markets is also favourable. The weak US dollar, which has depreciated by 1% and 5% against the Euro and Yen, respectively, since early 2006, will continue to aid sales of Hong Kong products to these markets.


For press enquiries, please contact TDC's Corporate Communication at 2584 4395.

Full report can be downloaded from http://www.tdctrade.com/econforum/tdc/tdc060801.htm
( Medium Prospects for Hong Kong Exports 2006 )



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Content provided by Hong Kong Trade Development Council