Hong Kong: GDP falls at softest pace this year in Q3
According to a second estimate released on 13 November, GDP fell 3.5% in year-on-year seasonally-adjusted (yoy sa) terms in the third quarter. The result was slightly sharper than the preliminary estimate of a 3.4% decrease but still marked a notable improvement from Q2’s 9.0% decline and the softest contraction so far this year. The initial estimate had come in above most market analysts’ expectations. In quarter-on-quarter seasonally-adjusted terms, GDP jumped 2.8% in Q3 (previously reported: +3.0% qoq sa), rebounding from Q2’s 0.1% contraction and marking the first expansion since Q3 2018.
The third quarter’s improvement was broad-based. Private consumption contracted at a much softer annual rate of 8.2% in Q3 (previously reported: 7.7% yoy sa), after sinking 14.2% in Q2, chiefly thanks to the easing of some social distancing requirements in September and fiscal stimulus measures taking effect. Similarly, the decline in fixed investment nearly halved to 11.1% in Q3 (previously reported: 11.2% yoy sa), after hitting the lowest level since the global financial crisis in the previous quarter (Q2: -21.4% yoy sa). Meanwhile, government consumption growth decelerated but remained upbeat, clocking in at 7.0% in the third quarter (previously reported: 6.4% yoy sa), from 9.7% in Q2.
On the external front, conditions also improved somewhat in the third quarter. Exports of services fell a slightly milder, albeit still severe, 34.6% annually in Q3 (previously reported: -34.8% yoy sa; Q2: -45.6% yoy sa), while exports of goods rebounded, rising 3.9% in the quarter (previously reported: +3.8% yoy sa; Q2: -2.2% yoy sa). In a similar fashion, the decline in imports of services softened to 36.8% in Q3 (previously reported: -37.8% yoy sa; Q2: -44.5% yoy sa), while goods imports returned to growth, increasing 1.8% in the quarter (Previously reported: +1.9% yoy sa; Q2: -6.7% yoy sa).
Commenting on the economic outlook, Lisheng Wang, Jing Wang and Ting Lu, economists at Nomura, noted:
“If Hong Kong can limit the number of new COVID-19 cases to single-digits and reopen the economy further, then a further rise in GDP growth is possible in coming months. However, we believe the domestic recovery will be gradual and bumpy, as the virus situation in major overseas economies (especially in the US and Europe) is worsening, domestic job market conditions remain subdued, and some social-distancing requirements and travel bans likely extend into Q4 and even next year.
We expect Hong Kong’s seasonally adjusted q-o-q real GDP growth to slow to 1.0% in Q4, while y-o-y growth could rise further to -1.9%. Accordingly, we update our 2020 annual real GDP growth forecast to -5.8%, from -7.0% previously to reflect the stronger-than-expected Q3 data.”
Meanwhile, Iris Pang, chief economist at ING, was somewhat more pessimistic regarding the outlook, saying:
“We do not expect the Hong Kong economy to improve in the fourth quarter. Technically it could be due to a negative base effect from the contraction of GDP in 4Q19. But looking at the substance, the wage subsidy scheme is going to end in November, which means there could be a wave of redundancies from November. And the coronavirus crisis in Europe and the US means the external sector is not going to get better anytime soon.”