RETAIL | Staff Reporter, Hong Kong

Hong Kong must brace itself for softer tourist spending

Arrivals have slightly improved, but spending remained tight.

Hong Kong retail sales growth came in below market expectations in March. Retail sales volume fell by 8.8% yoy in March, after declining 19.5% yoy in February (vs. market consensus of -6.9% yoy).

According to a research note from Bank of America Merrill Lynch, further, in value terms, March retail sales growth came in at -9.8% yoy vs. -20.6% yoy in February (market consensus of -8.8% yoy), marking the 13th consecutive month of contraction.

In its view, the narrowing of the monthly contraction was mainly attributed to a low base a year ago (March 2015 retail sales value growth was 18pp lower than in February 2015).

Here’s more from Bank of America Merrill Lynch:

Looking ahead, retail sales growth is likely to remain soft. While there are reports of some improvement in tourist arrivals since April, we believe the structural shift toward shorter visits will continue to pose headwinds on tourist spending.

Meanwhile, more cautious consumer sentiment amid the subdued economic outlook and deteriorating labor market conditions is expected to weigh on local consumption.

Both tourist and local spending remained soft: Tourist spending remained sluggish, restrained by weak visitor arrivals. Retail sales of jewelry, watches, clocks and valuable gifts, often seen as a proxy for tourist spending, continued to contract at double-digit pace, at 20.3% yoy in March (vs. 24.2% yoy in Jan-Feb).

At the same time, visitor arrivals continued to decline in March. In addition, local consumption remained soft in March. Partly helped by a low base a year ago, the contraction in retail sales value excluding luxury goods narrowed slightly, to 7.6% yoy in March from 11.1% yoy in Jan-Feb.

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