Economic outlook from an Asian perspective
A recent study by Daniel Poon, Assistant Chief Economist of HKTDC Research presents economic important facts that have 2012 an influence on the export situation of Hong Kong and mainland China
Daniel Poon expects a subdued growth of the American economy due to a high rate of people without a job and the still difficult situation in the housing market. The slow economic recovery will be based on continued monetary easing. He predicts poor income prospects and household deleveraging, both will heavily weigh on domestic demand and consumers will continue to go back to basics. However competitively priced products offering style and are safe and environmentally friendly present a somewhat more encouraging future. He further predicts that economic and trade relations between the US and China in the run-up to the American presidential elections will rub off on Hong Kong exports. Also the discussions on the Chinese currency issue will persist. The continued appreciation of the Chinese currency against the USD will erode the price competitiveness of Hong Kong exports.
He looks also at the important Chinese export item that is clothing, plagued by rising production cost and will be additionally punished by a strong CNY. American retailers will turn to sourcing from other countries than China. American consumers will opt for value-for-money giving an impetus to chic casual wear and basics offering comfort, functionality and environmental friendliness. Another sector of Hong Kong exports represents jewellery suffering from sustained prices of precious metals, gems and diamonds and the shying away of consumers from luxury consumption. Watch exports will suffer, however the trend for less costly items and basics will outperform luxury time pieces. Hong Kong has to face competition from China in the lower price segments.
The European debt crisis creates shadows ahead. Poon expects that this will create further EU consumer pessimism and Hong Kong exporters have to face the fluctuation of the EUR and they will be affected further by regulatory changes in the EU, especially with the imposition of anti-subsidy duties but also trade measures, regulatory requirements in relation to health and environmental protection.
The situation regarding Japan is also not encouraging except that the massive reconstruction efforts might boost the economy. Also the consumer confidence in Japan is slightly upwards after all the disasters and the supply chain is working again. Japanese consumers will be prudent and only the strong JNY will promote consumer goods but impede Japanese exports.
China will have to face an economic slowdown and be under observation as the largest single growth driver in the Asian region. On the other hand China’s new five year plan offers also opportunities for Hong Kong since the Chinese economy will be more driven by domestic demand than be exports and inward investment. Poon predicts that Hong Kong as a brand showcase and trendsetter will benefit from a growing and increasingly sophisticated Chinese consumer market but also from the Chinese accelerating urbanisation and the consequent development of service industries, the retooling and upgrading of the manufacturing sectors and the outward investment trend of Chinese companies. China will invest more for R&D and to upgrade technology and Hong Kong as a technology marketplace will profit. Even with more moderate development of Asian economies expected their sound economic facts will put them in a rather good position to master the situation. Hong Kong has registered an excellent export position particularly with India and Indonesia. Looking at Vietnam is looks like the country will continue to suffer from an overheated economy and Thailand has to digest the effect of flooding and is also exposed to the global economic downturn.
In South America commodity exporters like Argentina, Brazil and Chile will benefit from commodity prices but Mexico – closely linked to the USA – will be affected by the sluggish American economic development. Since anti-dumping duties on a wide range of Chinese products were eliminated this could enhance the access of Hong Kong exports to the Mexican market.
Eastern and Central Europe will remain weak due to its close integration with the EU but Poland might evolve in a better position. Poon sees Turkey with a relatively robust domestic demand as a potential market for Hong Kong, but Turk economy might suffer from lower EU demand. Russia seems also a growing potential market thanks to its WTO accession and gains from oil and commodity prices. The facilitation of custom’s administration due to international practices will additionally help.
The political unrest in the Middle East and North Africa will support Dubai’s entrenched role as a region business hub and Hong Kong exporters will take advantage of this position. Also other African countries offer opportunities.