Hong Kong: GDP growth slows in Q2
GDP growth waned to 1.5% year on year in the second quarter, below market expectations and down from 2.9% in the first quarter. On a seasonally-adjusted quarter-on-quarter basis, economic activity declined 1.3% in Q2, contrasting the previous quarter’s 5.4% expansion and also undershooting market expectations. That said, a sharp drawdown in inventory levels depressed the GDP figures, and the underlying economic picture was thus stronger than the headline reading suggests.
Private consumption growth waned to 8.5% year-on-year in Q2 compared to a 13.0% expansion in Q1. That said, the expansion was still brisk, aided by the issuance of government consumption vouchers in April. Public consumption deteriorated, contracting 9.6% in Q2 (Q1: +1.3% yoy). Meanwhile, fixed investment contracted 1.0% in Q2, contrasting the 7.9% expansion logged in the previous quarter, likely weighed on by rising domestic interest rates.
On the external front, exports of services growth sped up to 22.6% year on year in the second quarter, which marked the best reading since Q2 2004 (Q1: +16.6% yoy). In addition, imports of services growth sped up to 30.2% in Q2 (Q1: +20.7% yoy). The surge in services trade was linked to the rise in international travel both to and from Hong Kong. In contrast, both goods exports and imports fell by double digits due to weak international goods demand and consequent soft re-export trade with mainland China.
Looking ahead, the Consensus is for the economy to return to growth in quarter-on-quarter terms in Q3 and to expand at a much faster year-on-year pace. Private consumption will be supported by the handout of more consumption vouchers in July, and services exports by higher tourist arrivals. Moreover, inventory changes are unlikely to suppress GDP as much as they did in Q2.
On the outlook, UOB analysts said:
“We still expect GDP to return to sequential growth in the two subsequent quarters of 2023 but Hong Kong’s full-year GDP growth is likely to fall short of our initial forecast of 5.5%. Factoring in the slower growth of around 2.2% y/y in 1H23, we think Hong Kong’s economy may expand by a more moderate 4.2% this year, which is in the mid-point of the official forecast range of 3.5 – 5.5%. The low base of comparison will be a greater boost to the headline growth rate in 2H23.”