Slow down in Hong Kong economy may have great negative impact on major luxury brands

Hong Kong’s government cut its estimate for the city’s expansion this year after the economy grew at close to the slowest pace since the financial crisis amid waning export demand from advanced nations. Growth will probably be in a range of 1 percent to 2 percent, the government said in a statement yesterday, compared with a previous forecast of 1 percent to 3 percent. Gross domestic product rose 1.1 percent from a year earlier in the second quarter, after a revised 0.7 percent gain in the first three months.

The trade-reliant economy risks further deterioration this quarter after China yesterday reported a slump in July export growth to 1 percent. Expansion across Asia is slowing as U.S. consumers limit spending and Europe’s debt crisis continues, adding to the challenges for Hong Kong’s new Chief Executive Leung Chun-ying.

Louis Vuitton pop up collaboration with Yayoi Kusama at Pacific Place, Hong Kong

Second-quarter growth compared with the 1.2 percent median forecast in a Bloomberg News survey of 15 economists. The economy contracted 0.1 percent in the second quarter from the first three months. Capital Economics cut its full-year growth forecast to 1 percent from 2 percent.

Li & Fung Ltd., the world’s biggest supplier of clothes and toys to retailers, plunged in Hong Kong trading by the most since its 1992 listing after slowdowns in U.S. and Europe caused a slump in operating profit. The Hong Kong-based company said that sales growth in the U.S. trailed expectations.

The government’s new full-year growth estimate “is predicated on the assumption that Europe will continue to muddle through and the situation is largely contained,” Government Economist Helen Chan said at a briefing yesterday. “All in all for external trade there is no ground for optimism.” Hong Kong’s GDP increased 5 percent last year and 7.1 percent in 2010.

The government raised its estimate for first-quarter expansion to 0.7 percent from 0.4 percent. Even so, that was the slowest pace since growth resumed in the last three months of 2009. Record unemployment and a fiscal crisis in the euro area, faltering expansion in the U.S. and slowing growth in China have damped global trade and hurt Hong Kong’s economy.

The city’s imports and exports in June were below all forecasts in analyst surveys. Overseas sales unexpectedly fell 4.8 percent from a year earlier and imports slipped 2.9 percent, a July 24 government report showed.

Slowing expansion in China is affecting purchases of luxury items by mainland tourists. While the volume of retail sales rose 8.5 percent in June from a year earlier, sales of jewelry, watches and clocks fell for the second month. Mainland Chinese customers are cutting spending and businessmen don’t need as many luxury watches to give out as gifts. For many international luxury brands especially in watches and jewellery, Hong Kong accounts for a major turnover share.

adapted from Bloomberg