Hong Kong Exports to Expand Faster than Expected in 2011

Hong Kong Exports to Expand Faster than Expected in 2011

Surging Costs Remain Major Challenge Facing Local Companies, HKTDC says

June 2011 – Thanks to the electronics sector’s stellar performance so far this year, along with an expected surge in export prices throughout the year, the Hong Kong Trade Development Council (HKTDC) has raised its forecast for Hong Kong’s export growth in 2011 to 12 per cent from an original eight per cent. The revision, said HKTDC Chief Economist Edward Leung, takes into account the repercussions of the disastrous earthquake and tsunami in Japan, political unrest in the Middle East and North Africa and the continuing sovereign debt crisis in Europe.

Speaking today at a press conference, Mr Leung also revealed that the Hong Kong Export Index had dropped to 53.8 in the second quarter, signaling moderate export expansion in the near term. (For an interview with Mr Leung, visit http://www.hktdc.com/info/webcast/v/en/en/1X04AZX6 or http://www.youtube.com/hktdc).

Hong Kong export growth in April slowed sharply, to 4.1 per cent, compared with 21.5 per cent in March. The impact is significant and expected to last a few months but diminish with the gradual restoration of parts and components supplies from Japan, according to Mr Leung.

Japanese Repercussions

A recent HKTDC survey found that about one-third of Hong Kong manufacturers and traders said their business had been affected by the disaster in Japan. The most affected industries include electronics, timepieces and machinery. Asked how their business had been affected, 45 per cent pointed to higher prices of raw materials or parts and components for their production, 41 per cent said demand for their products had fallen and 37 per cent mentioned disruptions to the supply chain. Nearly half, however, expected their business to be back to normal within six months.

Price of Oil

Political unrest in the East and North Africa has also cast a shadow over the global economy. Although the direct impact on Hong Kong’s trade has been minimal, uprisings in the region have slowed global recovery because of higher oil prices, given that the regions account for about one-third of the world’s supply. Despite the recent fall in commodity prices, crude prices have managed to increase by some 10 per cent since the beginning of the year.

“Decent Growth” Expected

Nonetheless, Mr Leung remains positive about Hong Kong exports “Along with the United States, some core members of the European Union, particularly Germany, will see decent growth despite the lingering sovereign debt crisis. Meanwhile, the resurgence in many emerging economies should stay firm,” he said.

Digital Demand

Electronics exports jumped 20 per cent in the first four months and remain the primary engine of growth in Hong Kong. Global demand for electronics, driven by the continuing appetite for digital products, has been stronger than earlier forecasts. It is expected that electronics exports will perform well for the rest of 2011.

“As Asia is a major electronics production platform, transportation of parts and components among different manufacturing bases has boosted intra-regional trade,” said Mr Leung. “Such activities inject much-needed vitality into Hong Kong exports.”

All in all, Hong Kong exports should continue to expand vigorously during the rest of 2011. “Export growth is largely due to increases in export unit prices arising from higher production costs, with expansion in volume terms likely to be mild,” Mr Leung said. “Inflationary pressures are evident. Hong Kong companies are confronted with immense cost pressures, incited by higher wages on the mainland and skyrocketing commodity prices. The related risks may threaten the world recovery over the medium term,” he added.

Production Cost Concerns

“Although Hong Kong companies managed to raise the unit prices of their exports by 7.6 per cent in the first quarter of 2011, some of them have not been able to fully transfer the escalated costs to their customers for fear of losing business,” Mr Leung said. “When prices continue to go up, it will affect demand eventually. Surging production costs will remain a formidable challenge facing Hong Kong exporters,” he concluded.

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