Consumption in Hong Kong

Hong Kong - Consumption

Economic growth slows for fifth consecutive quarter in Q2; near-term prospects look bleak

The economy slowed for the fifth consecutive quarter in the second quarter, with year-on-year growth dipping to 0.5%, a notch down from Q1’s 0.6% expansion. On a seasonally-adjusted basis, the economy contracted 0.4% in Q2 compared to the previous quarter, contrasting the 1.3% expansion in Q1.

Slower year-on-year growth in the second quarter was largely driven by fixed investment falling 11.6% over the quarter, even more sharply than the 7.0% decrease recorded in Q1. Fixed investment likely felt the unsettling impact of the anti-extradition bill protests in March that gradually morphed into a much broader pro-democracy movement through Q2, with hundreds of thousands of people regularly joining marches in June. At the same time, continued trade tensions between the U.S. and China, coupled with weak data from China, will have further rattled investors. In more positive news for Hong Kong’s economy, private consumption growth accelerated to 1.1% in Q2 from 0.4% in Q1, while public consumption growth remained high, moderating only slightly to 4.2% in Q2 from 4.5% in Q1.

A tougher international trade environment clearly took its toll on the economy in the second quarter as exports of goods and services decreased, while imports of goods also fell but service imports increased.

Looking at the third quarter, the economy is facing further pressure. Protests have only continued to escalate since Q2 ended, while tensions between the U.S. and China have also ratcheted up. The U.S. is now proposing slapping an additional 10% tariff on imports of USD 300 billion worth of Chinese goods, around half of which are expected to come into effect from September and the other half from December.

FocusEconomics Consensus Forecast panelists see the economy growing 1.4% in 2019, which is down 0.6 percentage points from last month’s forecast. For 2020, the panel expects the economy to grow 2.1%.