Hong Kong: GDP declines at a softer pace in the second quarter
The economy contracted 1.3% on an annual basis in the second quarter. This was a less pronounced drop than the first quarter’s 3.9% decrease but came in far below the expectations of markets and our panelists of a small expansion. Disruptions to trade with mainland China, weak business sentiment depressing investment intentions, rising interest rates, emigration and caution among consumers were likely all factors behind the disappointing Q2 GDP figure.
Looking at subsectors, private consumption rose 0.1% year-on-year in Q2 compared to a 5.8% contraction in Q1. Government consumption grew at the fastest pace in over a decade, expanding 13.0% (Q1: +6.7% yoy). Meanwhile, fixed investment declined at a slower pace of 3.0% in Q2, from the 7.8% decrease in the previous quarter.
On the external front, exports of goods and services decreased 7.6% on an annual basis in the second quarter, following the first quarter’s 4.4% contraction. In addition, imports of goods and services contracted 5.7% in Q2 (Q1: -5.7% yoy).
On a seasonally-adjusted quarter-on-quarter basis, economic activity increased 1.0% in Q2, contrasting the previous quarter’s 2.9% fall.
Looking ahead, the economic recovery should gather steam in Q3 thanks to the distribution of extra consumption vouchers from August, reduced travel restrictions and a pick-up in activity in mainland China. That said, rising Covid-19 cases at home, slowing demand in developed economies and a potential tightening of Covid-19 restrictions on the mainland are downside risks. Moreover, the weak Q2 showing has led our panelists to slash their 2022 GDP forecasts.
Commenting on their revised forecasts, which are among the most pessimistic in our panel, analysts at Nomura said:
“With a worsening local Covid situation, no [full] border reopening in sight, still depressed economic momentum in China coupled with [Q2’s] subdued data, we downgrade our GDP growth forecast for full-year 2022 to -1.0% y-o-y from 1.0% previously.”