15 December 2008 - Hong Kong's exports will decline in 2009, according to a trade forecast report released today by the Hong Kong Trade Development Council (HKTDC). That would mark Hong Kong's first fall in exports since 2001.

According to the report, Hong Kong's total exports are forecast to contract by six per cent in 2009, compared to the HKTDC's latest export growth forecast of 5.5 per cent for 2008. In November, the HKTDC revised its estimated growth for 2008 downward from its earlier forecast of seven per cent.

The impact of the global economic crisis is evident in the HKTDC's Export Index, which monitors the export performance and prospects of Hong Kong traders. The index is based on a quarterly business confidence survey covering Hong Kong's major industries.

For the fourth quarter of 2008, the index dropped by 11.6 points, to 22.3, compared to 49.1, 45.9 and 33.9 for the first three quarters respectively. A reading below 50 indicates a pessimistic outlook by exporters regarding export prospects, according to the HKTDC. The ratio of optimists to pessimists declined to a record low for the two-year-old survey, indicating that more companies have become bearish on Hong Kong's export outlook. Most cited weak demand from buyers as the main reason for their pessimism.

"A difficult external environment, heightened by the worldwide financial stresses and the prospect of a global recession, will tend to reverse the growth trend of Hong Kong exports that has prevailed over the past years," said HKTDC Chief Economist Edward Leung at today's press conference.

Traditional markets suffering
"Given the economic headwinds, the long-running consumption spree in traditional markets, especially the United States and the European Union, has subsided, with consumer confidence hitting an all-time low," said Mr Leung.

Alongside the US and the EU, Japan will increasingly feel the pain of the crisis, with prospects for 2009 poor, he added.

The higher-end consumer segment is expected to be particularly affected, as the repercussions of the global downturn reach the wealthy class. Luxury items such as jewellery and high-end fashion will be among the products most affected, while amid the housing slump, related items such as furniture, household products and electrical appliances will also sell less well. Sales of such discretionary items as toys, watches and consumer electronics are also expected to be weak, and the demand for computers will be further impaired by dwindling ICT investment worldwide.

As consumers shift to cheaper products, Mr Leung urged Hong Kong companies to respond to the trend of trading down. He expects that the global consumer market will be "back to basics."

Mr Leung noted that, with the increasingly fragile business and consumer confidence in traditional markets, many Hong Kong exporters are suffering from order cancellations, falling orders, escalating price pressure and growing receivable problems.

Although the US, the EU and Japan together account for about 30 per cent of Hong Kong's total exports, the three traditional markets constitute an overwhelming 60 per cent share of Hong Kong consumer goods exports. Considering the Hong Kong manufacturers' focus on consumer goods, the economic downturn in these traditional markets will have a more serious impact than that revealed by standard trade statistics.

Mainland holds promise
Developing economies are not immune to the financial crisis. Yet some emerging economies are expected to outperform most developed economies and their weaker counterparts in the developing world.

"The sound fundamentals of some economies, particularly those with current-account surpluses, along with large exchange reserves and high domestic savings, should help them cope with the global slowdown in general and the dwindling demand from developed markets in particular," said Mr Leung.

As examples, he cited India and Brazil. While they are difficult markets for many Hong Kong companies, their sheer size provides them with promising long-term opportunities, justifying efforts to enter the markets.

Oil exporters such as the Middle East and Russia may also have better market potential, as the accumulated windfalls over the past few years have boosted their economic health considerably. "So the prospects for Hong Kong exports are not completely bleak in the developing world," said Mr Leung.

The Chinese economy will expand, he said. The government has launched a Rmb4 trillion stimulus package to bolster domestic demand, shifting to a "proactive fiscal policy" and "moderately loosened monetary policy" in response to the financial turbulence. This should ensure that infrastructure investment, now targeted by the government as the impetus to growth, will stay strong.

Mr Leung pointed out that even with slower economic growth, the Chinese mainland holds the best promise among all major markets for consumer goods. Although some wealthy mainland consumers may curb lavish spending because of adjustments in the property and stock markets, they may be inclined to buy Hong Kong's mid-end products.

According to a HKTDC survey, sales to the mainland, including domestic sales of products produced there, account for more than 20 per cent of Hong Kong companies' total sales outside Hong Kong. Of these sales, only 38 per cent are consumer goods, indicating that there is much room for further expansion.

Hong Kong exports are expected to falter next year. The HKTDC's forecast is for total exports to contract by six per cent in nominal terms and 3.5 per cent in real terms. Bucking the trend in 2008, the increase in the unit value of Hong Kong's total exports is expected to reverse in 2009.

Mr Leung believes that consumer conservatism and the tendency to trade down, coupled with a softening renminbi and flagging crude oil and other commodity prices, will mean increased downward pressures on the unit value of Hong Kong exports.

About the HKTDC
Established in 1966, the Hong Kong Trade Development Council (HKTDC) is the international marketing arm for Hong Kong-based traders, manufacturers and service providers. With more than 40 offices worldwide, including 11 in the Chinese mainland, the HKTDC promotes Hong Kong as a platform for doing business with China and Asia. The HKTDC also organises trade fairs and business missions to connect companies with opportunities in Hong Kong and the mainland, while providing information via trade publications, research reports and online. For more information, www.hktdc.com