Household spending growth rate moderates to 1.1% in 1Q16

While exporrts and imports of goods fell.

Hong Kong was hit by another wave of external shocks at the start of the year, and the repercussions have lingered.

According to a research note from Standard Chartered, Q1 GDP growth came in at a weaker-than-expected 0.8% y/y (consensus: 1.5%), down from 1.9% y/y in Q4-2015.

On a q/q seasonally adjusted basis, the economy contracted 0.4% in Q1 (the first drop since Q2-2014), down from +0.2% prior. Growth in household spending moderated further to 1.1% y/y from 2.7% prior, and exports and imports of goods fell 3.6% and 5.4%, respectively.

Here's more from Standard Chartered:

Private consumption expenditure (PCE) contributed a mere 0.7ppt to headline growth in Q1; while net exports of goods contributed a decent 4.3ppt, this was because the import contraction outweighed the export decline. As expected, investment remained a large drag due to China-induced caution. Net exports of services also detracted from growth given the continued challenges facing the tourism sector, along with increased travel and spending abroad by Hong Kong residents.

Monthly data foretold the broad-based weakness in Q1 (Figure 2); the weak momentum has probably continued in Q2. While China’s economy and the Renminbi may have stabilised somewhat since March, and expectations of a Fed rate hike have been priced out, we do not expect much positive support from China or the US for the rest of this year.

Q1 GDP further confirms that household spending can only do so much to insulate Hong Kong from external headwinds, especially given that the unemployment rate is likely to rise from here.

The correction in residential property prices, while likely to stay orderly, has yet to run its course, in our view. Our tracker of sentiment among SMEs in Hong Kong fell to another a record low for Q2-2016, suggesting that pessimism is deep-rooted and will not turn around quickly.

We revise our 2016 and 2017 GDP growth forecasts to 1.1% and 1.8%, respectively (from 1.8% and 2.4%) to reflect the disappointing Q1 performance and our view of a much flatter recovery profile from here than previously expected.