Hong Kong Foreign Direct Investment (USD bn)

The economy contracted 4.2% year on year in Q4 and flatlined in quarterly terms, a worse outturn than markets were expecting. The year-on-year reading was held back by a roughly 25% fall in goods exports, likely on border restrictions with mainland China. Moreover, fixed investment fell by double digits amid subdued business sentiment and higher interest rates. More positively, services exports returned to growth thanks to a recovery in visitor arrivals, while both private and public consumption improved. Turning to Q1, economic activity should be gaining steam thanks to the reopening of the border with the mainland, China’s economic recovery and the lifting of vaccination requirements for all visitors. In January, the private-sector PMI rose to a five-month high, while passenger arrivals were up by over a quarter from December.