Economy grows at softest pace since Q2 2023 in Q3

GDP reading: Economic growth moderated in the third quarter to 1.8% on an annual basis (Q2: +3.2% year on year), the softest growth since Q2 2023 and undershooting market expectations. The slowdown was driven by softer growth in government consumption, fixed investment and goods exports, while private consumption continued to contract due to residents spending money in mainland China rather than in Hong Kong. On a seasonally-adjusted quarter-on-quarter basis, economic activity declined 1.1% in Q3, contrasting the previous quarter's 0.3% growth and marking the largest decrease since Q3 2022.

Drivers: Household spending fell 1.4% in the third quarter, which was above the second quarter's 1.6% contraction. Government consumption growth ebbed to 2.1% in Q3 (Q2: +2.2% yoy). Fixed investment growth waned to 3.7% in Q3, compared to 4.1% logged in the prior quarter. On the external front, exports of services growth improved to 2.4% in Q3 (Q2: +1.1% yoy). Conversely, imports of services growth softened to 8.2% in Q3 (Q2: +12.3% yoy). Exports of goods rose by 3.9% year-on-year, down from a 7.5% increase in Q2. Imports of goods grew by 2.6% in Q3 2024, compared to a 3.4% increase in Q2.

Panelist insight: On downbeat private consumption, Nomura analysts said: “This continued decline in private consumption is not a surprise to us, as retail sales growth remained largely unchanged in year-over-year terms in Q3, as compared with Q2. In our view, the sustained trend of the significant northbound travelling activity each weekend and during public holidays is putting continued pressure on domestic consumption, perhaps for years to come.” On the outlook, Goldman Sachs’ analysts said: “Looking ahead, goods export growth is likely to remain soft, facing uncertainty from the US election. But the easing financial conditions due to Fed rate cuts would potentially boost both consumption and investment growth in the coming quarters. Taken together with the weaker-than-expected Q3 GDP print, we revise down our 2024/25 full-year GDP growth forecast to 2.7%/2.6%, respectively (vs. 3.2%/2.5% previously) with more robust sequential growth in 2025.”

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