Office buildings are pictured through construction cranes in Hong Kong on Oct 28, 2022. The city’s GDP for the first three quarters fell 3.3 percent from a year ago, government data showed on Friday. (ISAAC LAWRENCE / AFP)

HONG KONG – The Hong Kong Special Administrative Region government has further revised downward the 2022 full-year gross domestic product forecast to minus 3.2 percent, from the minus 0.5 percent to 0.5 percent announced in August. 

Downside risks have increased due to the markedly-deteriorating external environment, elevated inflation and continued monetary policy tightening, heightened geopolitical tensions, and uncertainties about further developments in the COVID-19 pandemic situation.

Hong Kong’s economy shrank 4.5 percent from a year earlier in the third quarter, according to the government’s revised figures released on Friday. The economy retreated 2.6 percent quarter-on-quarter. For the first three quarters, the city’s GDP fell 3.3 percent from a year ago.

Total goods exports plummeted 15.6 percent in the period from a year earlier, due to the deteriorating external environment and disruptions to cross-boundary land transportation. Services exports declined 3.8 percent in the same period, as exports of financial services fell visibly due to weakened cross-border financial and fund-raising activities.

Private consumption expenditure was virtually unchanged from a year ago. “Local consumption was supported by the generally stable pandemic situation, improved labor market conditions and the disbursement of consumption vouchers in August, though the positive effects were partly offset by tightened financial conditions and the consequential weak asset market performance,” Government Economist Adolph Leung said.

We remain cautious to the risks posed by the external headwinds and tighter financial conditions as well as the revival of outbound tourism under the new ‘0+3’ arrangement.

Tommy Xie, Economist, OCBC Bank 

Overall investment spending in terms of gross domestic fixed capital formation saw a widened fall of 14.3 percent from a year ago amid higher borrowing costs and the deteriorated economic outlook.

Leung said that “as long as the pandemic situation remains under control and related restrictive measures are relaxed further, economic activities should gradually return to normal.” He cited that the relaxation of testing and quarantine arrangements for incoming visitors should provide some support to services exports. 

S&P Global Market Intelligence Economics Associate Director Pan Jingyi agreed:  “Should further stabilization of local COVID-19 conditions materialize in the near-term, improvement in domestic activity may be anticipated.”

OCBC Bank Economist Tommy Xie added that the recent rollback of COVID measures will likely soften the blow a bit.  “With the distribution of more consumption vouchers, and eased border measures, we should see some upside for retail sales.”

But OCBC Bank is still worried about the full-year economic performance and has revised downward Hong Kong’s full-year GDP forecast to a contraction of 2.7 percent for 2022.

“We remain cautious to the risks posed by the external headwinds and tighter financial conditions as well as the revival of outbound tourism under the new ‘0+3’ arrangement,” Xie said.

“It is clear that the near-term headwinds on growth have been stronger-than-expected. As growth faces a more challenging recovery, we do not rule out the option for further policy support to help stabilize the economy,” HSBC Greater China Economist Erin Xin envisaged.

Oxford Economics Senior Economist Lloyd Chan expects “Hong Kong will continue to face a highly challenging economic outlook in 2023.”

The economist is worried that the further weakening in global growth and COVID disruption to cross-border travel with the mainland will hamper goods exports. Rising interest rates, falling housing prices and a likely withdrawal of fiscal support to households next year will become an increasing drag on domestic demand.

But there is a silver lining to news about the domestic economy. “We think the boost from economic reopening will struggle to offset these headwinds by offering some reprieve for domestic activity and services exports next year, with net exports remaining a major drag on growth in 2023,” Chan said.