Turnaround in 2Q investments biggest disappointment in 2Q GDP results

Investment outlays dropped, even amid pessimistic forecasts.

In line with the surprise brought about by the slowing of Hong Kong GDP growth to 1.8% in 2Q14, subdued domestic demand proved to be the main reason for the slowdown in GDP growth

According to a research report from Hang Seng Bank, meanwhile, the major disappointment was a turnaround in investment’s big positive contribution in the first quarter.

Investment outlays plummeted 5.6% during the second quarter, below even Hang Seng Bank’s pessimistic forecast of a 4% decline.

This weakness reflected the sharp cutback in machinery and equipment investment (-10%) against a first-quarter expansion of 1.9%.

Here’s more from Hang Seng Bank:

However, the softer pace of investment reflected a payback for the strength seen in 2013 as well as some unfavourable base effect.

On a quarter-on-quarter basis, capital formation was up 9.1%. Taking these factors into account, the GDP figure was not as weak as it initially appears.

Private consumption: The second quarter also found it difficult to match the 4.3% growth in consumer spending last year.

The growth of private consumption, which accounts for more than 65% of GDP, fell by 0.3 percentage points to 1.2% in the second quarter.

As discussed in our previous reports, temporary factors such as falling gold purchases and the adverse wealth effect were probably the major reasons for the second-quarter soft patch.