Hong Kong’s GDP contracted by 4.2% y/y in the fourth quarter
Seasonally adjusted GDP was practically unchanged quarter-on-quarter
The economy will recover this year thanks to a revival in spending, tourism
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HONG KONG, Feb 1 (Reuters) – Hong Kong’s economy shrank for a fourth straight quarter and shrank 4.2% from a year earlier, preliminary government data showed on Wednesday, worse than economists’ estimates, as weakening global demand and higher interest rates rates hit exports and spending.
This was the second-deepest decline since the second quarter of 2020, when gross domestic product plunged 9.4% as COVID-19 took its toll around the world.
Economists at Morgan Stanley, DBS, Hang Seng Bank and Natixis had expected GDP to fall between 2.8% and 3.1%. The city’s economy shrank by a revised 4.6% in the third quarter.
“Looking forward, Hong Kong’s economy is expected to show a recovery in 2023,” the government said, adding that China’s recovery in growth and the revival of tourism after the lifting of quarantine restrictions should support.
On a seasonally adjusted quarterly basis, the economy remained virtually unchanged in the October-December period, compared with a 2.6% decline in the third quarter.
For the whole year 2022, GDP decreased by 3.5%.
Asia’s financial hub has been hit by its own pandemic measures as well as spillovers from China’s zero-Covid policies, but a recovery in mainland consumer spending and a pick-up in travel are expected to help the economy this year.
However, Hong Kong faces risks from high inflationary pressures and aggressive monetary tightening in advanced economies. Higher borrowing costs and a pessimistic economic outlook have hit asset prices, pushing private home prices down 15.6% in 2022, the first annual decline since 2008.
Barclays, HSBC, Hang Seng Bank and DBS forecast that Hong Kong’s GDP will grow between 2.1% and 6.5% in 2023.
The government said an improved economic outlook, a return to business activity and a strong labor market should support private consumption in 2023 and investment in fixed assets will benefit.
“The real impact of the still partially reopened border with mainland China will only be felt from the second quarter, meaning pressure will prevail in the short term,” said Gary Ng, chief economist at Natixis Corporate and Investment Bank.
Strict COVID-19 restrictions have affected Hong Kong’s economy since early 2020, halting tourism and limiting sales at bars, restaurants and shops.
Hong Kong’s Supreme Leader John Lee has prioritized improving international competitiveness and attracting more talent from overseas, and most restrictions except for wearing masks have already been lifted.
Last week, Lee said he wants to lift all COVID-19 restrictions this year and lead the global financial center to a full return to normalcy.
“Although there are cyclical upswings from China, Hong Kong is likely to grow by 3% in 2023 and only touch pre-pandemic levels by the end of the year due to the negative impact of high interest rates on exports and consumer sentiment,” Ng. he said. “The city still lags behind regional competitors.” (Reporting by Twinnie Siu and Donna Kwok; Editing by Jacqueline Wong)