2022 Mid-Year Export Review: Strong Rebound Anticipated Before Year-End

Amid weakening global economic and trade growth prospects, Hong Kong’s export performance has expanded at a lower rate than had been anticipated, rising by only a tepid 2.8% year-on-year in the first four months of 2022. The Russia-Ukraine conflict, higher energy, food and commodity prices, rising inflationary pressure, tightening monetary policy stances by major central banks, new waves of Covid outbreaks and related lockdowns, as well as logistics bottlenecks all took a heavy toll on Hong Kong’s economic and trade performance as well as that of the rest of the world. Accordingly, the International Monetary Fund (IMF) lowered its global economic growth forecast in April, trimming its real global GDP growth estimate by 0.8 percentage points to 3.6% for 2022 compared to its more optimistic January estimate. The World Trade Organisation (WTO) has also lowered its trade forecast and is now predicting world trade volume growth of 3% for 2022, 1.7 percentage points lower than its January estimate.

The relatively weak export performance is mainly due to the disruption of cross-boundary cargo flows between mainland China and Hong Kong amid the fifth wave of the local Covid epidemic. According to the Transport Department’s latest figures, the number of cross-boundary vehicles at all crossings for goods vehicles and containers dropped by 35.7% in the first quarter compared to a year earlier, restraining cross-border trade flows. This caused a significantly negative impact on Hong Kong’s export performance, as mainland China accounts for almost 60% of the city’s exports. In the first four months of 2022, Hong Kong exports to the mainland decreased by 3.1%.

Hong Kong's exports to other major markets have, however, registered strong growth. Exports to the US, for instance, surged by 19.3%, while rising by 18.8% in the case of the ASEAN bloc and by 9.2% for the European Union. Exports to markets with strong supply-chain connections, such as Taiwan and Vietnam, also recorded increases, rising by 34.6% and 22.9% respectively. During the same period, Hong Kong’s export of raw materials and semi-manufactured goods climbed by 7.4% year-on-year, outperforming the overall headline growth of 2.8%.

By sector, electronics industry exports, which constitute about 70% of Hong Kong’s total exports, increased by 4.6% year-on-year in the first four months of 2022. Due to the well-established electronics manufacturing production network in the region and strong inter-regional trade, Hong Kong’s exports of electronics to Taiwan and Vietnam recorded remarkable growth in the same period, rising by 40.3% and 35% respectively. However, exports of electronics to mainland China dropped 2.8%. Meanwhile, total exports of watches and clocks notched up moderate growth of 2.2%, while clothing dropped by 6.1%.

The challenge of driving volume

HKTDC Research’s export growth forecast of 8% for 2022 is above trend. With the growth in export value likely to be largely due to price rises, export volume may be stagnant or could even decrease. Supply chain disruptions and logistics bottlenecks are expected to ease gradually in the second half of the year, reducing the cost pressure on traders. Nevertheless, any further intensification of the Russia-Ukraine conflict or any new Covid outbreaks could hinder the revival in global demand and pose significant downside risks to the forecast. As indicated by the latest HKTDC Export Index, 35.8% of exporters believe the pandemic will continue to be their primary concern in the second half of 2022, followed by the slowdown of economic growth (14.8%) and continued border closures (12%).

Electronics, toys, watches and clocks

With regard to the major exporting industries, we see toys, watches and clocks, as well as the electronics sector, as likely to post above-trend growth for 2022 (see Table 4).

Hong Kong exports of watches and clocks are expected to benefit from the pent-up demand accumulated during the long pandemic period. It is also expected that smartwatches will remain a key growth engine as consumers continue to be more health conscious and increasingly inclined to monitor themselves, trends accelerated by the pandemic experience.

We also see promising prospects for Hong Kong’s toy exports, with new 3D live-action games set to be released in the second half of 2022, a development that may create demand for related digital games and peripheral toy products. Furthermore, the growing popularity of electronic gadgets and e-sports products / equipment is also likely to be a potential driver of Hong Kong’s toy exports.

Electronic exports, which account for 70% of Hong Kong’s total, are expected to rise slightly above trend. Global demand for semiconductors is expected to climb as chips have become more heavily embedded in many essential technologies, ranging from consumer electronics to automobiles. In all, the demand for semiconductors is projected to increase significantly amid the post-pandemic recovery in global demand. Nevertheless, the worldwide shortage of electronic chips may cap growth for 2022.

ASEAN, Japan and the US

With regard to the major export markets, we see the ASEAN bloc, Japan and the US as likely to outperform their respective long-term average growth levels, while mainland China should stage a significant recovery in the second half of the year (see Table 5).

Hong Kong’s exports to the mainland are expected to stage a significant recovery in the second half of the year, delivering slightly above-trend growth for 2022 as a whole. With the recent easing of Covid-related restrictions as cases drop on the mainland, cross-border cargo flows, as well as many manufacturing facilities, are gradually resuming normal operation.

Moreover, Hong Kong traders also look set to benefit from the Regional Comprehensive Economic Partnership (RCEP), which came into effect at the beginning of this year, although any increased trade flow may not be fully captured in Hong Kong export statistics. Mainland China-Japan trade is expected to benefit the most under the RCEP framework, which also provides a number of opportunities for Hong Kong exporters. This may explain why the Asia market has been deemed the most promising, with Japan the likely best performer followed by the ASEAN bloc and mainland China, according to the latest HKTDC Export Index.

Outside the region, strong export momentum with regard to the US market is expected to continue in the second half of the year, a development likely to be bolstered by the re-opening of social and business activities. The latest economic indicators – including retail sales, wages and job-growth data – all point to resilient US consumer demand. Less promisingly, Hong Kong’s export outlook to the EU is clouded by weakening economic activities in the region. With the Russia-Ukraine conflict having already led to a sharp increase in energy and food prices globally, Europe has been the most badly affected region. In line with this, on 16 May, the European Commission lowered the eurozone growth forecast for 2022 to 2.7%, down from its previous estimate of 4%, citing rising energy and commodity prices that have "exacerbated pre-existing headwinds" as acting to forestall growth.