Hong Kong's 2014 and 2015 GDP forecasts revised down

Amid growth slowdown in 1H14.

Growth slowed yet again to 1.8%y/y in 2Q14 from 2.5% in 1Q14, largely driven by a very weak domestic economy.

According to a research note from UBS, the improvement in goods exports was not enough to offset the domestic weakness. The report said that 2H14 could improve slightly, though.

Amid this, UBS revised down its 2014 and 2015 GDP forecasts to 2.3%y/y (old: 3.0%) and 2.5%y/y (2.8%), respectively.

Here's more from UBS:

What they mean: 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.

12-month outlook: We've revised down our 2014 and 2015 GDP forecasts to 2.3%y/y (old: 3.0%) and 2.5%y/y (2.8%), respectively.

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.