Six-year low: HK retail sales growth plunge to -0.2%

Amid a mixed bag of factors.

Locals’ spending is expected to fare better than tourist spending on positive wealth effects.

According to a report by DBS, December 2014 retail sales values and volumes contracted 3.9% (YoY) and 1.3% respectively, versus the 4.1% and 7.5% growth seen in November. This concluded full-year retail sales growth at -0.2%, the lowest since 2009.

Full-employment, sanguine property and equity market outlook should bolster locals’ spending. Meanwhile, tourist spending growth will be tepid as China’s economic growth slows further. That said, a repeat of the steep drop in tourist spending like that in 2014 (-12.2% YTD Nov) is unlikely.

DBS says that the contraction in tourist spending in 2014 was attributed to myriad factors, other than China’s economic slowdown.

Firstly, it might have reflected newly emerging structural shifts in the tourist mix and tourists’ spending patterns. Hong Kong has been receiving a broader mix of mainland tourists, including those from lower tier cities, thereby lowering average per-head spending; the anti-corruption campaign that had been ongoing for more than a year had changed tourists’ purchasing behavior. This explains the persistent drop in spending on luxury items such as jewellery, and watches. While these trends would continue into 2015, the numerical impact on growth (YoY) would be less significant than in 2014, due to the erosion of base effects.