Export outlook picks up

The outlook among Hong Kong exporters saw a marked improvement in the second quarter of 2022 as a receding COVID-19 pandemic helped to revive freight flows and manufacturing activity.

The HKTDC Export Index grew 6.2 points to 30.9 in April to June, the first rise in the past 12 months, indicating that local exporters have begun to regain confidence in the city’s export outlook as the impact of the pandemic gradually subsides, and supply chain disruption and logistics bottlenecks show signs of easing.

Broad recovery

Hong Kong Trade Development Council (HKTDC) Assistant Principal Economist (Greater China) Alice Tsang said all major markets and industry sectors showed an upturn in exporter confidence. “Among them, the Japan market (47.6) and toy sector (38.7) provided the most promising outlook, while the European Union (42.3, up 2.8 points) and timepieces (34.6, up 14.9 points) showed the greatest improvement.

“Traders are facing rising cost pressure as export prices are set to surge in the next couple of months. The Trade Value Index remained in expansionary territory at 51.7, despite a 1.1-point fall quarter-on-quarter,” she added.

All other sub-indexes, including the Employment Index (45.3, up 4.9 points) Procurement Index (25, up 4.7 points) and Offshore Trade Index (23.1, up eight points), also saw an upward trend, indicating that recruitment activities have stabilised alongside improvements in offshore trade and procurement.

“The lockdown measures in Mainland China may have had an impact on local businesses with regard to production shutdowns and delayed shipments. Nevertheless, with the pandemic beginning to recede, cross-border cargo flows and many manufacturing activities getting back to normal, our latest survey findings show a significant improvement in the overall business sentiment, although exporters remain cautious,” said Irina Fan, Director of Research, HKTDC.

Reduced impact

In the latest survey of local exporters, fewer respondents said their business had been negatively affected by the pandemic over the past few months (79.1%, down 14 percentage points from the last quarter), while only 35.8% cited it as their top concern for the coming months (down 17.7 percentage points).

In addition, fewer exporters experienced pandemic challenges such as difficulties in communicating with buyers/suppliers (21.6%, down 20 percentage points), shortages in raw materials/parts and components (34.6%, down 11.9 percentage points) and order cancellations (16.7%, down 9.7 percentage points). “Nonetheless, increased transportation costs (72.6%) remained as one of the key concerns,” Ms Fan said.

Forecast unchanged

Summing up the situation, Ms Fan said a strong recovery in Hong Kong’s trade performance is expected in the second half of 2022. “Our export forecast for this year remains unchanged at an 8% increase compared to 2021,” she said. However, Ms Fan stressed that the strong growth in total export value is mainly driven by cost-induced price rises, while export volumes are likely to remain stagnant, or even see a decline.

She also reminded local exporters to be aware of the risks from stagflation, geopolitical tensions and a pandemic resurgence, “all of which may hinder the revival of global demand”.

Diversifying products and markets

Ms Tsang said issues such as the US interest rate hike, Russia-Ukraine conflict, and a weakening renminbi have yet to affect the business of Hong Kong exporters, with most respondents reporting no negative impacts (70.7%, 69.1% and 56.9% respectively) to date in these three areas.

Some respondents said they had experienced increased operating costs (21.9%), reduced buyer orders (13.8%) and increased financing costs (9.4%) due to the US interest rate hike, while the main impacts resulted from the Russia-Ukraine conflict are increased transportation costs (20.1%), shortages in raw materials/parts and components (13.2%) and disruption to logistics/distribution arrangements (12.8%).

She said diversification is Hong Kong exporters’ favoured business strategy to help them spread risks and at the same time capitalise on new market opportunities. Many of them are planning to develop other product lines (41.2%), diversify sales into additional overseas markets (35.6%) and establish a presence in the mainland’s domestic market (22.1%).

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HKTDC Research