Hong Kong: GDP records sharpest contraction since Q2 2020 in Q3
November 11, 2022
GDP dropped at a sharper pace of 4.5% year on year in the third quarter, below the 1.3% contraction logged in the second quarter and far below market expectations. Q3's reading marked the worst result since Q2 2020.
Private consumption was unchanged year on year in Q3, as in Q2, despite the loosening of Covid-19 restrictions, lower unemployment and the distribution of consumption vouchers to residents. Tighter monetary policy, a rise in Covid-19 cases in the quarter, a fall in the population and weak consumer sentiment likely kept spending subdued. Public spending expanded 5.1% (Q2: +13.0% yoy). Fixed investment contracted at a more pronounced rate of 14.3% in Q3, down from the 2.1% contraction logged in the prior quarter.
On the external front, exports of services contracted 3.8% in Q3 (Q2: +2.2% yoy), as weaker financial and transport services more than offset rising tourism. Goods exports fell by double digits, due to a weaker global environment and disruptions to trade with mainland China. In addition, imports of services contracted at a sharper rate of 3.6% in Q3 (Q2: -2.4% yoy).
On a seasonally-adjusted quarter-on-quarter basis, economic activity dropped 2.6% in Q3, contrasting the previous quarter's 1.0% growth.
The economy should record an improved performance in Q4, thanks to the removal of quarantine requirements for visitors and the disbursement of more consumption vouchers in October. However, a deteriorating external environment will keep activity depressed nonetheless.
On the labor market, DBS’ Samuel Tse said:
“Although the jobless rate fell from the peak of 5.4% in Feb-Apr to 3.9% in 3Q22 […] the decline of the jobless rate is reflecting human capital outflow. Amongst all, the drop of younger prime working aged workforce, i.e. aged 25-44, was most noticeable at 3.9%. This accounted for 81% of the shrinkage in total workforce. This explains why private spending did not recover alongside the decreasing unemployment rate. […] Such structural change in the workforce will dampen consumption power over the long-run.”
On the outlook, Nomura analysts said:
“With no border reopening with Mainland China in sight, still depressed economic momentum in China, a slowing global economy, and Hong Kong’s remaining Covid containment measures, we further downgrade our Q4 GDP growth forecast to -4.5% y-o-y from 0.5%.”
Author: Oliver Reynolds, Economist