Hong Kong: GDP plunges at sharpest rate on record in Q2
July 29, 2020
The economy contracted 9.0% in year-on-year seasonally-adjusted (yoysa) terms in the second quarter, resulting in the second fastest contraction since current records began—only marginally slower than Q1’s 9.1% decline—according to advance estimates. In quarter-on quarter seasonally-adjusted terms, GDP contracted 0.1% in Q2, after slumping 5.5% in Q1. These latest prints highlight the strain the economy is under as Hong Kong continues to grapple with the coronavirus pandemic and simmering social tension.
Private consumption fell 14.5% year-on-year in the second quarter (Q1: -10.6% yoysa), coinciding with an increase in the unemployment rate to 6.2%, which was the highest level in just over one-and-a-half decades. Moreover, fixed investment contracted 20.6% year-on-year in Q2 (Q1: -15.8% yoysa) as business confidence hit the lowest level since the Global Financial Crisis. More positively, government consumption growth accelerated to 9.6% in Q2 (Q1: +8.8% yoysa).
On the external front, exports of services plunged 46.6% year-on-year in Q2 (Q1: -37.4% yoysa) and exports of goods declined 2.1% (Q1: -9.7% yoysa). Meanwhile, the decline in imports of services intensified to 43.5% in Q2 (Q1: -24.5% yoysa), while the decline in imports of goods slowed to 6.8% (Q1: -11.1% yoysa).
Looking ahead, uncertainty regarding the evolution of Covid-19 will remain a threat to Hong Kong’s economic outlook, especially regarding tourism and retail sectors, as will the evolution of China-U.S. relations and social tensions. Hong Kong’s exports will remain constrained due to the difficult external environment. Nevertheless, the economy is expected to slowly recover during the remainder of the year 2020, assuming the recent surge of cases is contained again, partly due to strong fiscal support worth roughly 10% of GDP, along with additional measures aimed at providing financial relief.
Author: Edward Gardner, Economist