Economists dial down expectations despite easing of tensions

Major banks in Hong Kong have warned of a bleak economic outlook amid a contraction in demand for services, aggravated by political uncertainty in the SAR and the possibility of a US interest rate hike.

The HSBC Purchasing Managers' Index (PMI) on Tuesday posted below the 50.0 no-change mark at 49.8 for September, up fractionally from 49.6 in August, indicating a fractional deterioration in business conditions in the city's private sector for the second successive month.

The PMI is a composite index designed to provide timely indications of changes in prevailing business conditions in the SAR's private-sector economy. A PMI reading above 50 indicates that the economy is expanding, while one below 50 suggests contraction.

Australia and New Zealand Banking Group (ANZ) also said it expected the HSBC Hong Kong PMI to deteriorate in October as the "Occupy Central" campaign continues.

"If the 'Occupy Central' campaign goes on, it will seriously affect Hong Kong's economy, hindering GDP growth in the second quarter. Currently, ANZ maintains a 2.5-percent GDP growth forecast for the whole of 2014, but we'll decide whether or not to lower that forecast based on a series of data," said ANZ Banking senior economist Raymond Yeung Yu-ting.

"Hong Kong's economy will see a decline in the third quarter with the mainland economy slowing down and a weak European economy. This hinders the flow of capital and people to Hong Kong," he added.

September marks the second consecutive month that the PMI remains below the 50.0 mark. HSBC said private-sector companies in the city continued to trim their staff numbers in September amid muted client demand. Although the job cuts are seen as modest, the pace of the retrenchments has been the fastest in four months. At the same time, the backlog of work has continued to rise for the second successive month, albeit fractionally. Where higher volumes of unfinished work were noted, these were generally attributed to greater-than-expected volumes of new work.

HSBC Global Research said Hong Kong's GDP growth is a major concern for local financial markets. The GDP contracted for the first time in three years in the second quarter of this year, forcing the Hong Kong government to lower its 2014 GDP forecast to between 2 and 3 percent - down from 3 to 4 percent.

In its monthly report for October, Hang Seng Bank said it expects the local economy to dip below historic actual growth trends in the next five years. "The economy is expected to grow by around 3.3 percent per annum between 2015 and 2020, down from average annual growth of 4 percent recorded for the period from 2010 to 2013. The main reason for the current growth slowdown is largely cyclical rather than structural," Hang Seng Bank senior economist Ryan Lam said.

However, every cloud has a silver lining, especially with the impending launch of the Shanghai-Hong Kong Stock Connect program. The program, once operational, will allow investors in Hong Kong and the mainland to trade shares listed in both cities, and it's expected to have a positive effect on equities.

celia@chinadailyhk.com

Vehicles move at a snail's pace in Wan Chai on Tuesday because of the blockades of the "Occupy" protests. Economists estimate that if the "Occupy" campaign goes on, it would surely drag down the city's economic growth. Roy Liu / China Daily

(HK Edition 10/08/2014 page5)