How Hong Kong's economy is suffering from China's slowdown

GDP forecast down to 3.5%.

According to DBS, given the absence of growth catalysts, it is revising down Hong Kong’s 2013 GDP growth to 3.5% from 4.0% previously. It have also revised down China’s 2013 GDP growth to 7.5%.

Here's more:

We have been arguing for some time that private consumption (accounting for more than 60% of GDP) will prop up Hong Kong’s growth this year. In
1Q13, private consumption grew a staggering 7.0%, up from 2.8% in 4Q12 and well above the trend growth of 4.5%.

Then, in May, HKMA’s chief warned about rampant consumer spending and potential risk of overheating in the economy.

Along these lines, HongKong’s growth should be well supported, absent a sharp deterioration on the trade front. Unfortunately, this is exactly what happened.

In May, export growth plunged to -1.0% from 9.0% in April.

Of course, this is partly attributed to China’s growth slowdown. Recent events on the mainland have reaffirmed the Chinese government’s determination to implement structural reforms even with the knowledge it will impede economic growth.

The market needs more time to accept the fact that Xi’s government is willing to sacrifice short term growth in exchange for long term economic sustainability.

Fears triggered by China’s slowdown and the recent credit crunch have already hammered HongKong’s stock market. Meanwhile, as more people anticipate a Fed exit and prepare for the ultimate hike in interest rates, property prices are setto fall in Hong Kong, albeit in an orderly manner.

Negative wealth effects stemming from equity and property market corrections will impact private consumption atthe margin. We say at the margin because HongKong’s unemployment rate is still sufficiently low to support consumption.