Brexit could cripple Hong Kong's trade in the near-term

Only 1.3% 2016 GDP growth is expected.

It has been noted that with the uncertainty arising from the UK’s decision to leave the European Union (EU), colloquially referred to as ‘Brexit’, the global economy may slow, which would likely lead to a similar trend in trade growth.

According to a research note from Hang Seng Bank, although Hong Kong’s direct trade exposure to the UK is limited, with goods exports to the nation accounting for about 1.5% of total goods exports and 6.6% of total services exports, Hong Kong’s trade could still be adversely affected if the world economy slows in response to the UK’s Leave vote.

The uncertainty created by Brexit may also make Hong Kong businesses and households cautious about investment and consumption, which have both already shown some signs of weakness in recent quarters. The report noted that gross domestic fixed capital, a proxy of business investment, has recorded three consecutive quarters of annual decline and private consumption expenditure annual growth has slowed to 0.7%, a level not since the third quarter of 2009.

Here's more from Hang Seng Bank:

Investors have sought safe-haven assets, notably the US dollar, after the Brexit vote. Following the US dollar’s strong run, the Hong Kong dollar has also
strengthened, representing an additional factor weighing on the city’s trade and investment.

With the downside risks to the Hong Kong economy, we now expect the city’s GDP growth for 2016 to be 1.3%, down from our previous forecast of 1.5% and from the 2.4% achieved in 2015.

While upcoming economic data for the second half of the year could be volatile and even surprise on the upside due to a low-base effect that could result from the slowdown in activity in the second half of last year, the key factor in assessing the economic outlook is the underlying trend, which is currently indicating further slowdown