Hong Kong's GDP results in economists slashing 2022 projections

Hong Kong’s gross domestic product (GDP) is expected to contract once again after economists have revise their projections following recent data revealing a hampered growth, as a result of COVID-19 restrictions and a decline in trade.

Bloomberg reported that this would mark the third GDP contraction in a span of four years.

Economists from Goldman Sachs Group Inc. anticipate Hong Kong’s GDP to decline 0.5% this year, slashed from the 0.3% growth projection made prior. At the same time, Bloomberg Economics also revised its projection to decline 0.6% in comparison to its previous forecast of 0.7% growth.

The revision comes after data on Aug 1 showed Hong Kong’s economy contracting 1.4% in the second quarter year-on-year (Y-o-Y).

Even though some relief is anticipated for Hong Kong in the second half of the year, recovery remains uncertain due to the drag on demand and trade as a result of the COVID-19 restrictions domestically and in China.

Additionally, growth momentum is also under pressure due to Hong Kong raising interest rates in tandem with the hawkish take by the Federal Reserve in order to maintain the peg of the local dollar to the greenback.

Another set of data released a day after showed that consumer spending remains under pressure as well. The report shows a decline in the value of retail sales of 1.2% in June Y-o-Y, which was less than what economists had anticipated. Government data revealed that sales volume declined by 4.1% due to the decrease in purchases of clothes and electronics.

Bloomberg’s article said that the weaker-than-anticipated second quarter GDP for Hong Kong reflects the challenges that the economy is still facing. A speedier recovery requires additional reopening but the increasing number of COVID-19 cases have complicated things. Slowing foreign demand and increasing interest rates are also detrimental.

As a result of the sluggish performance of the economy in the second quarter, Bloomberg Economics now anticipates that the GDP will contract by 0.6% in 2022, which is worse than the 0.7% expansion predicted earlier.

An inevitable revision to Hong Kong’s GDP coming

In 2019, Hong Kong’s GDP shrank due to the political protests while the pandemic outbreak further exacerbated its performance a year later.

Paul Chan, Hong Kong’s Financial Secretary, recently said that the city would have to “inevitably revise down” its 1% – 2% growth projection for the full-year sometime in the middle of August.

A spokesperson for Hong Kong also stated that the overall economic recovery have been held back by issues including freight disruptions between Hong Kong and China, a resurgence in COVID-19 cases, inflation in advanced economies, and monetary tightening policies.

Meanwhile, economists at Citigroup Inc. had revised their full-year growth projections for Hong Kong downwards by a full percentage point, forecasting an expansion of only 0.5%. It noted that domestic demand is anticipated to dampen in the second half of the year due to growing COVID-19 cases and persistent uncertainties around the timing of Hong Kong’s border reopening with China, while at the same time face fears of global recession.

Analysts at DBS Group Holdings Ltd. also reduced their GDP projections for the year from 1.7% to 1%. In a recent note, it said there are expectations that mandatory quarantine for overseas arrivals would be loosened by the end of the year and there would be some resumption to large-scale events, including an upcoming financial conference in November, that would contribute to a modest recovery in consumption.

Hong Kong remains as one of the last locations in the world to adhere to social distancing measures for COVID-19 as well as quarantine requirements for inbound travellers, factors which have impeded tourism and travelling to the city.

Although some limitations were eased in April, the figures for retail sales and exports have been slow to recover.

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