Hong Kong: GDP records sharpest contraction since Q3 2020 in Q1 2022
May 13, 2022
GDP declined 4.0% year on year in the first quarter, below the 4.7% expansion recorded in the fourth quarter of last year. Q1's reading marked the worst since Q3 2020. On a seasonally-adjusted quarter-on-quarter basis, economic activity contracted 2.9% in Q1, down from the previous quarter's flat reading. Q1's sequential reading marked the largest contraction since Q1 2020. The stark worsening in economic dynamics in Q1 was the result of a Covid-19 outbreak in the quarter, and the consequent shutdown of most of the hospitality sector. Moreover, the lockdowns in many parts of mainland China hit external demand, given its extremely close economic linkages with Hong Kong. Transportation flows to and from the mainland were also disrupted by Covid-19 restrictions.
The downturn reflected contractions in private consumption, fixed investment and exports. Private consumption contracted 5.5% in Q1 (Q4 2021: +5.3% yoy), and fixed investment contracted 8.4% in Q1 (Q4 2021: -0.6% yoy). On the other hand, public consumption picked up to a 6.0% expansion in Q1 (Q4 2021: +4.1% yoy).
On the external front, exports of goods and services contracted 4.3% in Q1 (Q4 2021: +12.9% yoy), while imports of goods and services deteriorated, contracting 5.7% in Q1 (Q4 2021: +9.5% yoy).
Looking ahead, the economy should rebound in sequential terms in Q2 as restrictions have been progressively lifted since April, in line with a sharp fall in new Covid-19 cases. Moreover, consumption vouchers worth HKD 5,000 (around USD 635) were distributed to residents in April, with a further HKD 5,000 to come soon, which will support spending. However, lockdowns in China will continue to drag on exports.
On the near-term outlook, Ho Woei Chen, economist at United Overseas Bank, said:
“[The] dynamic zero-Covid approach meant that there are persistent risks that the Covid-19 curbs will be re-tightened and little prospects that Hong Kong could benefit from tourism recovery as other countries reopen their borders. Other risks pertain to high commodity prices that are exacerbated by the Russia-Ukraine conflicts, slowdown in the mainland’s economy and rising domestic interest rates in line with U.S. Fed’s monetary policy tightening. We see the investment outlook remaining downbeat while consumption and exports are likely to pick up in the upcoming quarters.”
FocusEconomics Consensus Forecast panelists project the economy will expand 1.6% in 2022, which is down 0.1 percentage points from the previous month’s forecast. In 2023, the panel sees growth at 3.4%.
Author: Oliver Reynolds, Economist