Faltering global economic recovery will hurt demand for electronics, says HKTDC

Hong Kong's export growth will slow to 8 percent in 2011 from an estimated more than 20 percent in 2010, as a slackening global economic recovery will also mean less demand for electronic products, the latest Hong Kong Trade Development Council (HKTDC) report shows.

However, the export sector is set for a strong finish this year, as the better-than-expected global economic recovery this year, together with multiple stimulus policies implemented by governments around the world, has helped shore up global consumption, HKTDC said.

The city's total exports for the first 10 months of this year leaped 24.6 percent from a year ago after contracting 12.6 percent in 2009. Global GDP growth, now projected by the IMF to reach 4.8 percent this year, stands in stark contrast to the 0.6 percent decline in 2009.

But the buoyant growth in exports seen this year is unlikely to be carried into 2011, as the anticipated deceleration in the global economic recovery is set to put a cap on people's willingness and power to spend, HKTDC Chief Economist Edward Leung said.

"Hong Kong's export growth will not remain at such a high level, as the outstanding figures recorded in 2010 were amplified by the low comparison base, as well as the hearty appetite for high-tech and discretionary products," Leung said.

Demand for electronics, Hong Kong's largest export earner, won't be looking as rosy in the year ahead. Exports of electronic products have recorded a forceful rebound so far this year. Exports of finished electronics grew 14 percent during the first 10 months year-on-year, while those of electronics parts and components jumped 42 percent over the same period. However, as the electronics cycle, mainly driven by developed markets, has shown signs of maturity, the surging demand seen for electronic products this year will not be repeated in 2011, Leung added.

But Hong Kong's exporters will still find themselves helped by robust intra-regional trade, particularly with the mainland, which will remain strong, according to Leung. "Domestic demand in China will remain robust despite its economic slowdown, which will drive up demand for Hong Kong's exports," he said.

Still, challenges abound for Hong Kong's exporters going forward. Rising labor costs pose the biggest threat, which employers haven't been able to fully convert into price increases, according to Leung. And the fact that commodity prices are trending up and that the yuan is likely to continue to appreciate will only make things worse, Leung cautioned.

"The exporters have to upgrade their product structure, to shift from simple processing to high value-added activities and high technology, to avoid being crowded out," Leung said. Meanwhile, exports have to go where the market is, he added. "In contrast to the lukewarm demand from developed markets, good opportunities will be found in much of the emerging world", he said.

China Daily

(HK Edition 12/17/2010 page3)