Boosting spending can offer HK respite from uncertainties
Boosted by consumer spending, the US economy grew at a faster clip in the 2016 third quarter than previously forecast. This should be good news for Hong Kong, which counts the United States as one of its largest markets.
Strong consumer demand is expected to lead to a rise in US imports from various developing economies, including those in Asia. As a regional financial and trading hub, Hong Kong stands to benefit both directly and indirectly from the projected increase in cross-Pacific trade.
But, the question is whether the US economy can continue growing at such a pace. Many economists in the US think otherwise. They see growth in the fourth quarter slipping to below 2 percent from 3.2 percent in the previous quarter, adding that other sectors of the economy, notably residential fixed investment and government spending, are lagging behind.
While consumer spending, which accounts for more than two-thirds of the US economy, had grown faster than estimated, business expenditure had fallen much more sharply than expected. A New York Times report projected that growth for the whole of this year would be modest — at 1.5 percent and down from last year’s 2.6 percent.
Of more immediate concern to investors is the projected US economic performance after Donald Trump is sworn in as president next month. The focus will be on his professed trade policy which carries a distinct protectionist overtone.
The uncertainties arising from the protracted trade negotiations that are expected to be initiated by the Trump administration could discourage businesses in this region from making longer term investment plans. The resulting decline in demand for financial services would directly hit Hong Kong.
Together with the decline in export growth in past months, contributions from financial services to Hong Kong’s economy have also dropped. Shrinking loan demand has prompted many local banks to step up efforts to compete for the mortgage-lending and personal-loan businesses.
That has the effect of fueling the already overheated property market. Hopefully, easy credit can help boost consumer spending, which, together with increased public sector expenditure, would give the local economy a much needed shot in the arm.
The growth of the US economy in the third quarter was higher than expected, which should bode well for Hong Kong, as the world’s largest economy seeks more imports from Asia that is driven by consumer demand.