Economic growth gains steam in the second quarter

GDP growth improved to 3.3% year on year in the second quarter from 2.8% in the first quarter, beating market expectations. Stronger goods exports and fixed investment were the key drivers, outweighing slumping private spending and softer services exports momentum. On a seasonally-adjusted quarter-on-quarter basis, economic growth slowed markedly to 0.4% in Q2, down from the previous period's 2.5% expansion.

Private consumption fell 1.6% year-on-year in Q2, compared to a 1.2% expansion in Q1. The strength of the Hong Kong dollar and Hong Kongers shopping on the mainland dampened spending. Public consumption, meanwhile, bounced back, growing 2.0% in Q2 (Q1: -2.2% yoy). Fixed investment growth improved to 6.0% in Q2, above the 0.1% expansion in the prior quarter. On the external front, exports of services growth fell to 1.3% in Q2, marking the worst result since Q3 2022 (Q1: +9.4% yoy). In addition, imports of services growth slowed to 12.4% in Q2 (Q1: +18.0% yoy). Softer expansions in visitor flows amid the post-pandemic normalization of tourist activity likely weighed on both services exports and imports. In contrast, exports and imports of goods sped up in Q2 from Q1, likely boosted by strong global electronics demand.

Our Consensus is for annual GDP growth to continue at a similar pace to Q2 for the remainder of the year, sustained by external demand.

On the external sector, DBS analysts said: “The exports sector was a rare bright spot. Buoyed by rising demand for electronics, goods exports were up 7.6% YoY in 2Q24 in real terms. In value terms, exports to China and ASEAN were up 8.7% and 7.2% respectively. Meanwhile, imports in real terms increased at a more modest pace of 3.4% due to weak domestic demand. As a result, net exports contributed 3.7% ppts to Hong Kong's headline economic growth rate.” On tourism, United Overseas Bank’s Ho Woei Chen said: “Retail sales have reverted to contraction since Mar due to a number of factors such as the shift to cross-border consumption while tourist arrivals and spending are trickling in with the weak mainland economy and Hong Kong dollar strength likely to have affected demand. Total tourist arrivals reached 21.15 mn in 1H24, a significant improvement from 12.88 mn in 1H23 but was only 60% of the level in 1H19.”

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