Hong Kong’s GDP grows 5.1% in 2Q11

A two-speed growth story in Q2. Q2 GDP growth came in at 5.1% y/y; this is -0.5% q/q SA, lower than the market consensus of 6.0% and Q1’s 7.5%. The main reason for the disappointing outcome was the larger-than-expected drag from net exports, which subtracted around 2ppt from headline growth – a reflection of regional supply-chain disruptions and shortterm destocking in mainland China.

However, domestic growth sources remained resilient. In particular, household spending growth accelerated further to 9.2% y/y from 8.0% prior, mainly thanks to a tight labour market and faster wage growth. Investment growth also rebounded, to 8.1% y/y from -0.3% prior. Overall, the 5.1% headline growth rate, albeit a marked slowdown from Q1, remains above trend, which is around 4.0-4.5%.

The two-speed nature of growth may in fact be a source of comfort, especially if one believes that the external soft patch – be it in China or in the US – will be transitory. The government is keeping its full-year GDP forecast at 5.0-6.0%, and we are keeping ours at 6.0%. The Fed’s recent commitment to keeping rates low until mid-2013 further reinforces our view that inflation, not growth, will be the bigger risk over the coming years.