Analysts expect easing trend to continue as 'base effect?subsides

Hong Kong's exports rose 13.9 percent year-on-year in October, helped by robust trade within Asia as well as strong demand from the US, government data showed Thursday. However, growth eased for a second consecutive month - a trend which analysts expect to continue in the months ahead.

The value of the total exports of goods jumped 13.9 percent from a year earlier to HK$274.2 billion in October after gaining 24.1 percent in September and 36.0 percent in August.

Vibrant demand within Asia provided a large part of the thrust. Shipments to Asia as a whole were up 13.7 percent in October compared with a year earlier, while those to the mainland - the main destination for Hong Kong re-exports - registered an increase of 12.6 percent over the same period.

Strong demand from the US also pushed figures higher. Exports to the US surged 17.1 percent in October compared with the corresponding period in 2009.

Although it is less obvious at first glance, the "base effect" is also starting to subside, said Irina Fan, senior economist at Hang Seng Bank. The vigorous expansion seen in the export sector so far this year is largely due to a low base of comparison in 2009, said Fan. This year has seen the creation of an increasingly higher comparative base, so the notable growth achieved thus far will continue to decelerate, Fan said.

"We will see an easing of growth going forward," Fan said. "And the trend of deceleration will carry on probably more obviously into the coming months."

This slowdown, as Paul Tang, chief economist at Bank of East Asia, suggested, is the "normal pattern" that occurs when the lower base effect begins to diminish. He projected 7-8 percent growth going into 2011.

The "base effect" aside, export growth may also moderate due to Europe's economic woes and a struggling US economy.

The "weak recovery prospects" for those regions, according to a government spokesman after the release of the October figures, remains "a key source of downside risk overshadowing Hong Kong's trade performance looking ahead," although Asian demand will presumably continue to boost the sector for a while yet.

To put the situation into a regional perspective, Fan noted that the export growth of Hong Kong's Asian peers such as Japan, Singapore and the Republic of Korea have also been losing steam starting from the fourth quarter.

The city's imports also climbed 14 percent compared with a year earlier at HK$296.4 billion in October, leaving a trade deficit of HK$22.2 billion.

Fuelled by strong exports and domestic consumption, Hong Kong's economy grew by a better-than-expected 6.8 percent in the third quarter, the sixth consecutive quarterly gain, the government said earlier this month.

China Daily

(HK Edition 11/26/2010 page2)