Would lower crude prices drastically affect Hong Kong's economy?

It's a welcome tailwind for economic growth.

While lower crude prices may provide a welcome tailwind for economic growth, it has been suggested in an analysis that it is unlikely to be a game changer for the Hong Kong economy.

According to a research note from Hang Seng Bank, The traditional rule of thumb for assessing the impact of crude oil shocks is that for each 10% decline in oil prices, growth increases by 0.1 to 0.2 percentage points.

However, Hang Seng Bank noted that these estimates are largely the result of model-based simulations and should be treated with caution. One limitation of these model simulations is that they heavily rely on historical average elasticity.

In practice, the economic factors involved vary considerably over time. With reduced oil intensity and improved energy efficiency, the evidence supporting an adverse shock on oil supply today is less compelling than in the past.

Hang Seng Bank believes the decline in commodity prices is unlikely to be a game changer for the Hong Kong economy.

Here's more from Hang Seng Bank:

Though lower crude oil prices would provide a welcome tailwind for growth, our analysis suggests its impact on the Hong Kong economy should not be overestimated.

The USD50 decline in oil prices experienced over the past six months will boost the city’s GDP growth by about
0.2 percentage points, according to our estimates.

The positive effect on consumer spending probably represents the most important boost to the economy from lower energy prices. Its estimated effect on exports, on a net basis, is supportive but negligible.