Hong Kong’s post-pandemic economic boom is already running out of steam, suggesting the financial hub’s return to growth this year may not be as strong as initially hoped.
(Bloomberg) — Hong Kong’s post-pandemic economic boom is already running out of steam, suggesting the financial hub’s return to growth this year may not be as strong as initially hoped.
Gross domestic product rose 1.5% in the April-to-June from a year earlier, according to advance estimates released by the government on Monday. That was far weaker than the 3.5% estimated by economists and slower than the first quarter’s 2.5% pickup.
While the data undershot expectations, Financial Secretary Paul Chan on Sunday did warn of waning growth ahead of the release. He flagged the potential for a “slightly slower” year-on-year growth rate, citing more muted spending habits among residents. They are in some cases taking their money to neighboring Shenzhen, which he said has emerged as a popular tourist and shopping destination.
Hong Kong spent years mired in recession, contracting in three of the past four years as the city’s tough virus controls restricted border flows and curbed local activity. The city expanded in the first quarter as it opened back up. Returning tourists were expected to contribute to growth, which officials estimated would reach between 3.5% and 5.5%.
Economists think Hong Kong can hit the low end of that wide range by the end of 2023, but the months ahead may still be challenging.
“The main drivers will be consumption and tourism” due to cyclical tailwinds, said Gary Ng, senior economist at Natixis SA, adding that last year’s low base of comparison will help. But he said it’s “hard to expect a quick recovery of exports” given weak global demand.
“Any meaningful rebound may really only come in Q4 for Hong Kong’s exports,” Ng said, citing that timeframe as when firms that accumulated inventory post-Covid will be able to get back to balance through destocking.
Monday’s data showed household spending growing 8.5% in April-to-June from a year prior — weaker than the 12.5% expansion in January-to-March. While goods exports dropped at a slightly slower pace than in the first quarter, those overseas shipments still recorded a double-digit decline. Imports of goods fell 16.1%.
A big drag on exports was China, according to Samuel Tse, economist at DBS Bank Ltd, who noted that the mainland accounts for around 60% of Hong Kong’s exports.
Government spending in the second quarter declined 9.6% — a big reversal from the first quarter’s 0.5% rise.
That pullback “is consistent with the government’s plans to consolidate its fiscal position following huge Covid related outlays in previous years,” said Lloyd Chan, economist at Oxford Economics Ltd.
Hong Kong’s fiscal deficit ballooned during its isolation, with the budget shortfall for the 2022-2023 fiscal year hitting a whopping HK$140 billion. The International Monetary Fund earlier this year recommended the government reduce the deficit “gradually.”
The government sounded some optimism over the state of the economy, including that an improving economic situation “should bode well for domestic demand.”
“In particular, improving labor market conditions, together with the government’s various measures to boost the momentum of the recovery, will provide additional support to private consumption,” a spokesperson said in a statement accompanying the data.
The spokesperson warned that “tight financial conditions may impose constraints.” Goods exports will also face pressure, the person said.
–With assistance from Philip Glamann.
(Updates to include additional background and commentary.)
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