Hong Kong GDP slows to disappointing 2.5%

Poor export performance is to blame.

According to UBS, Hong Kong growth unexpectedly slowed to 2.5%y/y in 1Q14 from 2.9% in 4Q13, largely driven by disappointing exports of goods and services, which slowed to 1%y/y from 5.5%.

It said trade should improve somewhat going forward but given downside risks from China, it believes Hong Kong's real GDP will only marginally improve this year.

Here’s more from UBS:

GDP is the broadest measure of economic activity. It is strongly correlated with the profit cycle and provides important clues about inflation and the direction of policy.

However, GDP has less relevance for cyclical policymaking because monetary policy is set by the US Fed according to the logic of Hong Kong’s fixed exchange rate.

A strong commitment to the fixed exchange rate also limits fiscal policy in practice.

The domestic economy, in particular private consumption, is trending down, in part as domestic asset prices deflate and HK adjusts to the tightening liquidity conditions.