Hong Kong GDP shrinks for 4th straight quarter, but poised for recovery

Updated: Feb 1, 2023, 09:51 UTC

HONG KONG (Reuters) - Hong Kong's economy contracted by 4.2% in the fourth quarter from a year earlier, advance government data showed on Wednesday, shrinking for the fourth consecutive quarter as exports were hampered by weak global demand.

Containers at Hong Kong port

HONG KONG (Reuters) -Hong Kong’s economy shrank for the fourth straight quarter, contracting an annual 4.2%, advance government data showed on Wednesday, worse than economists’ estimates as weakening global demand and higher interest rates hit exports and spending.

It was the second deepest contraction since the second quarter of 2020 when gross domestic product shrank 9.4% as COVID-19 took a toll around the world.

Economists from Morgan Stanley, DBS, Hang Seng Bank and Natixis expected GDP to contract between 2.8% and 3.1%. The city’s economy shrank a revised 4.6% in the third quarter.

“Looking ahead, the Hong Kong economy is expected to show a recovery in 2023,” the government said, adding that China’s growth recovery and rebound in tourism from the removal of quarantine restrictions should lend support.

On a seasonally adjusted quarterly basis, the economy remained virtually unchanged in the October-December period as compared with a 2.6% contraction in the third quarter.For the whole of 2022, GDP shrank 3.5%.

The Asian financial hub has been battered by its own pandemic measures and also spillover from China’s zero-COVID policies, but recovering consumer spending on the mainland and a rebound in travel are expected to help the economy this year.

    However, Hong Kong is facing risks from high inflationary pressure and aggressive monetary tightening in advanced economies. Higher borrowing costs and a pessimistic economic outlook have hit asset prices, dragging 2022 private home prices down 15.6% in the first annual drop since 2008.

Barclays, HSBC, Hang Seng Bank and DBS forecast Hong Kong’s GDP to grow between 2.1% and 6.5% in 2023.

The government said an improved economic outlook, return of business activities and a strong labour market should boost private consumption in 2023, and fixed asset investment will benefit.

“The real impact of the still partially reopened border with mainland China will only be felt from the second quarter, meaning the pressure will prevail in the short run,” said Gary Ng, senior economist at Natixis Corporate and Investment Bank.

Strict COVID-19 restrictions have affected Hong Kong’s economy since early 2020, grinding tourism to a halt and battering sales at bars, restaurants and shops.

Hong Kong’s top leader John Lee has prioritised improving international competitiveness and attracting more overseas talent, and most restrictions have already been lifted apart from the wearing of masks.

Last week, Lee said he aims to lift all COVID-19 restrictions within this year and lead the global financial hub towards a full return to normality.

“Even though there are cyclical upsides from China, Hong Kong will likely grow by 3% in 2023 and only touch its pre-pandemic level by year-end due to the negative impact of high-interest rates on exports and consumer sentiment,” Ng said. “The city is still lagging regional competitors.”

(Reporting by Twinnie Siu and Donny Kwok; Editing by Jacqueline Wong)

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