AFTER a near-certain contraction last year for the third time since 2019, Hong Kong’s economy is coming back stronger this year, and may even grow faster than rival financial hub Singapore’s for the first time in more than a decade.

Economists are upgrading their forecasts for Hong Kong as the city accelerates its reopening with mainland China and the rest of the world. The median estimate in a Bloomberg survey of 12 economists last week was 3.3 per cent growth for 2023, higher than the 2.7 per cent forecast in a survey of 25 economists in November.

Analysts are becoming more optimistic as Hong Kong sheds its remaining Covid curbs and rolls out a plan to allow people to more freely cross its border with China again.

On Sunday (Jan 8), mainland China ended mandatory quarantines for arrivals, making cross-border travel a reality again for many people.

An influx of arrivals would be good news for Hong Kong. It would start to revive businesses that have been hurt by the closure, from hotels and catering companies to investment and wealth management firms.

The mainland border reopening has been cautious so far, with officials implementing a cap of 60,000 people per day. But the gradual pace of recovery may give way to a stronger showing in the final six months of the year.

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“We see Hong Kong turning the corner, but the real effects are likely to be seen only in the second half of 2023,” said Heron Lim, an economist at Moody’s Analytics. He expected Hong Kong’s gross domestic product (GDP) to expand 3.8 per cent this year, compared to a November estimate of 3.2 per cent.

Lim also saw quarterly growth reaching 7.7 per cent in the period of October to December.

Hong Kong needs a win. Officials estimated that GDP shrank 3.2 per cent last year, as the city was slow to emerge from its pandemic isolation. Global headwinds, including high interest rates and waning demand, also took a toll.

In comparison, Singapore – which has been trying to gain an edge over its Chinese competitor for top talent and business – was much quicker to shed its Covid controls. In 2022, its economy expanded 3.8 per cent.

Growth in trade-reliant Singapore is projected to level off this year as the US and Europe are likely to head into recessions. The most recent estimate in a Bloomberg survey was for the city-state to expand 2 per cent.

If Hong Kong grows at a faster pace than that, it will surpass Singapore for the first time since 2008.

Economists who participated in the most recent Hong Kong survey expected the city to turn to fiscal support and other measures to shore up growth this year.

Three respondents expected officials to issue more consumption vouchers worth HK$5,000 (S$855) per person to spur spending, while seven said that either personal or corporate tax cuts could be on the table. Respondents were allowed to select more than one option.

While Lim of Moody’s said the government would likely unveil a smaller fiscal support package this year than in 2022, “it will remain expansionary as the authorities seek to jump-start the flailing economy”.

Even as Hong Kong reopens, its problems are not easily fixable. The years of isolation cost Hong Kong’s economy an estimated US$27 billion in potential growth, based on an analysis by wealth management firm Natixis.

The city’s property market – the world’s least affordable – is also under strain as interest rates rise and housing demand slides. Economists polled by Bloomberg said they expected the city’s prime rates to increase this year.

Besides weak demand, an impending worldwide recession and other global headwinds are adding to the city’s woes.

“China’s reopening is helpful, but it will not solve all the problems Hong Kong has right now,” said Gary Ng, senior economist at Natixis. He projected a growth of 3 per cent for this year, slightly below the median estimate.

He added: “As higher interest rates and a global slowdown kick in in 2023, the city’s economic prospects are only cautiously optimistic with short-term pressure.” BLOOMBERG