Hong Kong Economic Forecast

The economy performed worse than markets had expected in Q2, with GDP growth slowing year on year and contracting quarter on quarter. The year-on-year slowdown came on the back of weaker momentum in private consumption, government spending and fixed investment. Turning to Q3, the economy should pick up in year-on-year and sequential terms on favorable base effects, the tourism recovery, a smaller negative contribution to GDP from inventories and the disbursement of consumption vouchers to residents in July. That said, weak mainland Chinese demand and tight financial conditions are likely keeping a lid on momentum. Looking at available data, retail sales rose by double digits year on year in July, and visitor arrivals in July–August were 68% of their 2018 level, up from just 18% in Q2. However, the PMI pointed to weak private-sector operating conditions in July–August.

Inflation ticked down to 1.8% in July, following June’s 1.9%. July’s result represented the lowest inflation rate since March. The downtick was driven by lower inflation for food and utilities. Inflation is forecast to average slightly above 2% in H2 on the back of an uptick in global energy prices.