GDP growth grows at softest pace since Q2 2023 in Q1

GDP growth slowed markedly to 2.7% year on year in the first quarter from 4.3% in the fourth quarter of last year, due to a much higher base of comparison. Q1’s reading marked the worst reading since Q2 2023, but still beat market expectations. The slowdown in annual GDP growth was driven by weaker readings for private consumption, fixed investment and services exports. In contrast, goods exports growth accelerated and public spending fell at a softer pace. On a seasonally-adjusted quarter-on-quarter basis, economic growth accelerated to 2.3% in Q1 from the previous period’s 0.2% expansion.

Household spending growth fell to 1.0% in Q1 (Q4 2023: +3.5% yoy). Public spending dropped at a milder pace of 3.0% in Q1 (Q4 2023: -5.2% yoy). Meanwhile, fixed investment growth fell to 0.3% in Q1 (Q4 2023: +17.5% yoy). Exports of services growth fell to 8.1% in Q1 (Q4 2023: +21.2% yoy). In addition, imports of services growth waned to 17.6% in Q1 (Q4 2023: +26.7% yoy). Goods exports growth accelerated to 6.7% from 2.8%.

Our Consensus is for annual GDP growth to accelerate later this year. Higher tourist arrivals, recovering global electronics demand, higher Chinese import demand and the recent removal of property curbs will support the economy, though activity will remain held back by high interest rates and locals continuing to spend money in mainland China rather than at home.

On the contribution of the external sector to growth, EIU analysts said: “Stronger trade flows will provide a greater contribution to headline GDP growth this year as the post-pandemic rebound in domestic demand slows. [...] We expect the territory’s merchandise exports and imports (in nominal US-dollar terms) to grow by 7-9% each in 2024, reversing the contraction recorded in 2023. The territory’s position as a transhipment hub suggests that trade improvement will benefit the city’s trading and logistics sector, which accounts for about a quarter of Hong Kong’s economic output.”

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects Hong Kong government consumption projections for the next ten years from a panel of 10 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable government consumption forecast available for Hong Kong government consumption.

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