HKD Appreciates Against USD Following Optimistic GDP Announcement

Talking Points:

• 2014 Fourth Quarter GDP Ahead of Expectations.

• 2014 Yearly GDP Growth In Line With Expectations

• HKD Appreciates Following GDP Announcement.

The HKD appreciated against the USD when the Hong Kong Census and Statistics Department announced today that gross domestic product (GDP) increased by 2.2 percent in the fourth quarter of 2014 in real terms compared to the same period a year earlier. GDP grew at a slower pace than compared to the 2.7 percent increase in the third quarter of 2014, and outpaced leading analysts’ expectations of 2 percent growth. For 2014 as a whole, GDP increased 2.3 percent in line with leading economists’ expectations, however slower than the previous figure's reading of 2.9 percent. On a seasonally adjusted, quarter-to-quarter basis, GDP increased 0.4 percent in the fourth quarter of 2014 as compared to the third quarter of 2013.

When looking at the major components of GDP, private consumption expenditure (PCE) continued its rally, by increasing by 3.8 percent in real terms in the fourth quarter of 2014 as compared to the same quarter in 2013. As a whole, PCE increased by 2.7 percent over the year 2013. Government consumption expenditure (GCE) increased by 3.3 percent in real terms in the fourth quarter of 2014 as compared to the fourth quarter in 2013, however lagging behind 3.7 percent growth in the third quarter of 2014. In its entirety, GCE increased by 3.1 percent in real terms in 2014 over 2013.

Gross domestic fixed capital formation (GDFCF) soared by 4.0 percent in real terms in the fourth quarter of 2014 over a year earlier, despite the 3.3 percent decrease in the third quarter of 2014. GDFCF decreased 0.3 percent from 2014 to 2013. Within GDFCF, expenditure on machinery, equipment, and intellectual property products rose by 1.2 percent in real terms in the fourth quarter of 2014 over a year earlier, compared with the huge dip of 11.9 percent in the third quarter of 2014. Also contributing to an increase in GDP was a rise in expenditure on building and construction within GDFCF by 7.1 percent in the fourth quarter of 2014, compared with just a 5.0 percent increase in the third quarter of 2014. Expenditure on construction within the private sector increased by 2.9 percent, with the public sector increasing by 14.0 percent.

Finally, exports a major driver of GDP growth increased by 0.6 percent in the fourth quarter of 2014 compared to the same period a year earlier and a 1.0 percent increase in the previous quarter.