Hong Kong exports are expected to grow by 4% to 6% next year — a sharp contrast to the 11% decline in the city's export levels recorded for the period between January and October this year.
The Hong Kong Trade Development Council (HKTDC) said the optimistic outlook is driven by the significant increase in demand for electronic components, partly on account of growing demand for AI-enabled devices and other finished products, which play a crucial role in boosting the city's prospects.
"The unique properties of Hong Kong's electronics-orientated export economy make it almost ideally positioned to take full advantage of the imminent rebound in demand for high-tech components," said Irina Fan, director of research at HKTDC.
Light at the end of the tunnel
HKTDC noted that despite many of the factors restraining Hong Kong's 2023 export growth likely to remain in place next year, its outlook is based on expectations that the electronics sector — which accounts for 70% of all of Hong Kong's exports — is expected to enjoy rapid growth in 2024, partly on account of growing consumer and business demand for AI-enabled PCs.
"Demand in this sector is certain to bolster the local economy overall, ensuring that Hong Kong's wide exporter base will be fully ready and adequately resourced to take advantage of wider global economic recovery, which is expected to come to fruition over the course of 2025," Fan added.
Nonetheless, HKTDC signalled continuously softened sentiment in the near term.
It said in a statement that export growth is set to come after continuously softened export sentiment this year.
"The HKTDC Export Index contracted 5.5 points to 35 in the fourth quarter of 2023, indicating Hong Kong exporters have become more cautious amid rising geopolitical tensions, in particular the Israel-Gaza conflict, and sluggish external demand," the report said.
Exporter sentiment has declined across four of the six major industry sectors. Machinery, at 40.3 (up 0.9 points), was one of the better-performing sectors, followed by electronics at 34.8 (down 6.0 points).
Less optimistically, toys suffered the most substantial decline, falling 12.8 points to 29.4.
Based on a quarterly HKTDC survey of 500 exporters from six major industries — clothing, electronics, jewellery, machinery, timepieces and toys — the index above 50 indicates an optimistic outlook and below 50 pessimistic.
Sentiment in all key export markets remains below 50.
HKTDC noted, however, that sentiment towards India (42.7, up 10.1 points) is the most positive, followed by Taiwan (42.5, up 4.8 points) and Mainland China (39.5, up 0.9 points).
Exporters were less confident when it came to their export prospects to the EU (34.6, down 2.6 points) and the US (33.6, down 2.8 points).
Economic risks and geopolitical tensions concerns
"Looking ahead, economic risks remain the top concern for 2024," it said.
HKTDC noted that the majority (84.7%) of respondents saw economic slowdowns or recession risks in overseas markets as the major challenge, followed by ongoing geopolitical tensions (62.5%) and rising transport costs/disruption to logistics and distribution obstructions (41.8%).
It added that ensuring sufficient cash flow also "clearly stood out as the focus for next year," with over half of the exporters intending to adopt cash flow management, significantly more than in the last survey in the third quarter this year (32%).
More exporters also aim to maintain competitiveness by providing a wider range of value-added services (44.5%) and increasing marketing and promotional activities (41.2%).
Wing Chu, principal economist at HKTDC Research, said in addition to the common strategy of cash flow management, different industries favour various approaches.
"For example, businesses in the electronics, timepieces and machinery sectors are keen to increase marketing, promotion or business matching in the coming year. Those in jewellery and clothing sectors, meanwhile, are more inclined to prioritise the use of e-commerce to drive sales growth," he added.