Weaker tourist spending hurts Hong Kong

Retail sales growth figures have been low.

DBS Group Research noted:

Retail sales values and volumes are projected to grow 6.2% YoY and 5.0% respectively in October, down from 9.5% and 8.5% in September. It is an extension of a weak trend in Hong Kong’s retail sector, and retail sales growth may hover in the mid single-digits for the remainder of the year.

Low retail sales growth figures of late (Values: 3Q’s 5.9% vs. 2Q’s 10.3%) can be explained by weaker tourist spending. Although Chinese tourists arrivals grew steadily at 31.4% in September and 24.2% YTD (vs. 23.6% YTD in Sep11), average tourist spending reported by Travel Industry Council of Hong Kong decreased 25% from last year to $5,000-$6,000 per person over the golden weekend.

Mainland tourists are apparently spending less on luxurious items. Spending on jewellery, watches, clocks & valuable gifts have decelerated from 3.4% in 2Q to -2.8% in 3Q (3mma). Other popular tourist items, such as electrical goods and photographic equipment, have seen growth taper considerably from 41.6% in 2Q to just 15.2% in 3Q.

The adjusted retail sales value series after stripping out jewellery, watches and photographic equipment (creating a proxy for locals’ retail spending) has also been on a clear downtrend since January (17.4%, 3mma), shrinking to just 8.1% in August. Dwindling retail sales growth, especially on the locals’ part, will translate into sub-par private consumption growth in 4Q.