Hong Kong Retail sales continue to improve from a low base:We expect growth in retail sales value to

The decline in retail sales value moderated to -0.9% y-o-y in January (Consensus: -1.0%) from -2.9% in December.

    We believe retail sales will improve further and maintain our above-consensus 2.2% 2017 GDP growth forecast (Consensus: 1.6%).

    Retail sales continued to improve in January, led by supermarket and department store sales, while luxury good sales (e.g., jewellery, watches) declined (Figure 1). We believe retail sales growth will turn positive in coming months. First, visitor arrivals (76% of which came from the mainland China in 2016) to Hong Kong have bottomed out (Figure 2). The China manufacturing PMI rose to 51.6 in February from 51.3 in January, suggesting Chinese visitors to Hong Kong should rise. In addition, the Hong Kong government’s support for the tourism industry (e.g., waive licence fees for travel agents, hotels and restaurants) will likely help retail sales to some extent. Finally, the positive wealth effect from the resilient residential property market will likely support domestic consumption. Despite an additional stamp duty hike in November (see Asia Insights - Hong Kong: Stamp duty hiked in effort to cool housing market, 7 November 2016), the Centa City Leading Index - which is highly correlated with housing prices - rose to a record high of 147.7 in the week of 13 February.

    We have recently raised our 2017 GDP growth forecast to 2.2% from 0.5% on higher fiscal spending and a carry-over effect (see Asia Insights - Hong Kong: Upgrading the economic outlook, 22 February 2017). Today’s retail sales data support our above-consensus Hong Kong economic outlook.