Hong Kong unemployment rate returns to pre-crisis level--HSBC

Despite falling to 3.4%, analysts maintain a close watch on external risks and impact of the upcoming implementation of minimum wages.

Hong Kong's labour market remains tight, with the unemployment rate falling for the fifth straight time in the Jan-Mar period. Strong local and foreign demand helps to keep the employment outlook positive, though an expected pickup in wage growth looks set to fuel inflation further, according to an HSBC report.

Hong Kong's seasonally adjusted unemployment rate fell to 3.4% in the Jan-Mar period from 3.6% in the Dec-Feb period.

The labour force expanded by 3,100 from the Dec-Feb period to the Jan-Mar period, and the job market absorbed more than half of the increase, with total employment up 1,800. The latest reading shows that the number of unemployed persons stood at 124,500.

Hong Kong's unemployment rate again surprised on the downside, not only moving further below the long-term trend of 4.2% but also returning to pre-crisis levels. Recent PMI numbers point to a positive labour market outlook, with new orders still flowing in, thanks to robust local and foreign demand, which may in turn be attributed to loose liquidity conditions. 

Nevertheless, one should not overlook unfavourabe risks to the current rosy situation, especially with the implementation of minimum wages potentially leading to higher unemployment or underemployment. Meanwhile, although HSBC analysts do not expect Beijing's tightening measures to derail Mainland growth this year, uncertainties brewing in the MENA region and Japan and their potential impact on global energy prices and intra-Asian trade bear watching.

For now, the lender expects the tight labour market conditions and wage growth to contribute to higher inflation, as businesses pass on higher operating costs. That said, strong domestic demand is also set to keep consumer spending buoyant, helping to sustain the economy's growth momentum. 

Hong Kong's labour market conditions remain tight, with the unemployment rate still trending down. Although further improvement is likely in the next couple of months on the back of a solid economy, HSBC maintain a close watch on external risks as well as impact of the upcoming implementation of minimum wages.