Hong Kong: GDP plunges at sharpest rate on record in Q1
The economy declined at the steepest pace since current records began in the first quarter, with GDP plunging 8.9% in annual terms (Q4: -3.0% year-on-year). On a seasonally-adjusted quarter-on-quarter basis, the economy contracted 5.3% in Q1, sharper than the previous quarter’s 0.5% decrease.
Household spending dropped 10.1% year-on-year in the first quarter (Q4 2019: -2.9% yoy), while fixed investment declined at a more moderate rate of 14.3% in Q1, compared to the 16.8% contraction in the prior quarter. In contrast, government consumption growth jumped to 8.4% in Q1 (Q4: +6.1% yoy).
On the external sector, exports of goods and services contracted 15.2% in Q1, marking the worst reading since Q1 2009 (Q4: -6.1% yoy). In addition, imports of goods and services slid at a more pronounced rate of 13.0% in Q4 (Q4: -6.8% yoy).
Looking ahead, the contraction in economic activity should be more or less similar in the second quarter. Lockdown measures are easing around region, but the pandemic should still keep Hong Kong’s tourism and retail sectors in the doldrums due to ongoing border restrictions and anemic consumer confidence, which will weigh on private consumption.
Moreover, the first quarter marked the third straight year-on-year decline in economic activity and fixed investment has contracted at a double-digit pace since Q1 2019. Investor confidence and business sentiment levels are showing little signs of improving, and consequently investment will remain depressed.
Nevertheless, stronger fiscal support worth roughly 10% of GDP should ensure a softer fall in economic activity in the second half of the year.